SUMMER 2013

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m s object lessons s object ’ – – s embrace ’ s social network ’ neil macgregor:

china Plus inside the fact tank the fact inside troy carter on building building on carter troy a cyberspace odyssey a cyberspace lady gaga lady in the public eye in the public british museum british How to interpret to assertive newly How its diplomacy cultural on communicating “big communicating on visions picture” affairs public in Alan Murray on his new mission at Pew Research Center his on new Research Pew mission at Alan Murray What business and government can learn each from other the US Ambassador to the EU, and Barclays’ regulatory chief and Barclays’ Ambassador EU, the to US the Mashable’s CEO and Editor on creating foot soldiers brands for foot creating on and Editor CEO Mashable’s A JOURNAL OF COMMUNICATIONS AND CORPORATE RELATIONS RELATIONS CORPORATE AND OF COMMUNICATIONS A JOURNAL Portugal’s Prime Minister, the EU’s Internal Market Commissioner, Commissioner, Market Internal EU’s the Prime Minister, Portugal’s

INSIGHTS • INTERVIEWS • RESEARCH • DIFFERENT TAKE BRUNSWICK REVIEW ISSUE SIEVENSEVEN SUMMERSUMMER 2013 2013 0707 m mm om/review BRUNSWICK GROUP LLP GROUP BRUNSWICK www.brunswickgroup.c Brunswick Group offices Brunswick Group companies abu dhabi hong kong san francisco brunswick arts Office 807-B 12/F Dina House One Front Street 16 Lincoln’s Inn Fields Park Rotana Office Complex 11 Duddell Street, Central Suite 1850 London WC2A 3ED twofour54 Hong Kong SAR San Francisco, CA 94111 United Kingdom PO Box 77800 T: +852 3512 5000 USA T: +44 20 7936 1290 Abu Dhabi F: +852 2259 9008 T: +1 415 671 7676 F: +44 20 7936 1299 United Arab Emirates [email protected] F: +1 415 671 7677 [email protected] www.brunswickarts.com T: +971 2 234 4600 johannesburg [email protected] [email protected] 23 Fricker Road são paulo merchantcantos beijing Illovo Boulevard, Illovo Avenida Dr. Cardoso de Melo 20 Lincoln’s Inn Fields 2605 Twin Towers (East) Johannesburg 1.340 - Conj. 42 London WC2A 3ED B12 Jianguomenwai Avenue South Africa Vila Olimpia United Kingdom Beijing, 100022 T: +27 11 502 7300 São Paulo SP T: +44 20 7242 1336 [email protected] People’s Republic of China F: +27 11 268 5747 Brasil 04548-004 www.merchantcantos.com T: +86 10 6566 2256 [email protected] T: +55 11 3296 4086 [email protected] the lincoln centre F: +86 10 6566 3856 london [email protected] 18 Lincoln’s Inn Fields 16 Lincoln’s Inn Fields shanghai London WC2A 3ED berlin London WC2A 3ED Room 2907, United Kingdom Taubenstraße 20-22 United Kingdom United Plaza T: +44 20 7936 1300 10117 Berlin T: +44 20 7404 5959 1468 Nan Jing Road West F: +44 20 7396 3535 Germany F: +44 20 7831 2823 Jing’an District [email protected] T: +49 30 2067 3360 [email protected] Shanghai 200040 www.thelincolncentre.co.uk F: +49 30 2067 3366 milan People’s Republic of China trinity [email protected] T: +86 21 6039 6388 Via Solferino, 7 16 Lincoln’s Inn Fields [email protected] brussels 20121 Milan London WC2A 3ED 27 Avenue Des Arts Italy singapore United Kingdom 1040 Brussels T: +39 02 9288 6200 Opening later this year T: +44 20 7430 2249 Belgium F: +39 02 9288 6214 [email protected] F: +44 20 7936 7677 T: +32 2 235 6511 [email protected] [email protected] stockholm www.trinitymc.com F: +32 2 235 6522 munich Fourth Floor [email protected] Oberföhringer Straße 4 Birger Jarlsgatan 15 dallas 81679 Munich 111 45 Stockholm 200 Crescent Court Germany Sweden Brunswick is a corporate relations and communications consultancy. 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F: +1 214 254 3791 140 East 45th Street Concordia Haus [email protected] www.brunswickgroup.com 30th Floor Bankgasse 8 dubai New York, NY 10017 1010 Vienna Level 5 USA Austria Gate Village Building 10 T: +1 212 333 3810 T: + 43 1 907 65 10 PO Box 506691 F: +1 212 333 3811 F: + 43 1 907 65 10 40 Dubai International [email protected] [email protected] Financial Centre paris washington, dc Dubai 10 Boulevard Haussmann 1099 New York Avenue, NW United Arab Emirates 75009 Paris Suite 300 T: +971 4 446 6270 France Washington, DC 20001 F: +971 4 436 4160 T: +33 1 53 96 83 83 USA [email protected] F: +33 1 53 96 83 96 T: +1 202 393 7337 frankfurt [email protected] F: +1 202 898 1588 editor design & production Brunswick Review is printed on Weißfrauenstraße 12-16 [email protected] Jackie Shorey MerchantCantos Redeem 100% Recycled, made rome [email protected] www.merchantcantos.com using post-consumer waste fibers 60311 Frankfurt am Main Piazza del Popolo, 18 and manufactured without the use Germany 00187 Rome project manager printed by of any secondary bleaching. Georgina Brackstone CPI Colour T: +49 69 2400 5510 Italy [email protected] F: +49 69 2400 5555 cover illustration Copyright © Brunswick Group LLP 2013 T: +39 06 36712806 [email protected] feedback Lotta Nieminen F: +39 348 7098590 [email protected] [email protected] Since the financial crisis, the rules of holding business to account. In this issue, we of engagement have changed. Many look at the traps that these hearings can set, and companies have found that they must consider how a company can keep its own agenda deal with a far more intense level center stage. of scrutiny from politicians and Also in this issue, we hear from Portugal’s Prime regulators, who are pursuing their own agendas. Minister, Pedro Passos Coelho, about how his Companies also have to navigate a more complex government is striving to keep the public focused and hostile public terrain. on long-term objectives as they cope with the In dedicating much of this edition of the Review short-term pain of economic reform. Similarly, to public affairs, we thought we should hear Michel Barnier, the European Union’s Internal directly from political and regulatory leaders, Market Commissioner, and William Kennard, US as well as businesses operating largely in the Ambassador to the EU, both discuss efforts to forge a public sphere, about how they are dealing with freer but also more robust transatlantic marketplace. the communications demands of the post-financial Around the world, there are new and interesting crisis world. Understanding these complex approaches to meeting the challenges where public challenges is vital if we are to learn how the private and private interests intersect. Exemplars of these and public sectors can build better relationships new models are discussed by Luis Alberto Moreno of with each other and with the public at large. the Inter-American Development Bank, Choo Chiau As companies come under greater scrutiny, it is Beng, CEO of Keppel in Singapore, and Francis Yeoh not just about what they do, but also how they do of YTL in Malaysia. These questions also arise in the it. Politicians, regulators, and the media may take cultural sphere, as the British Museum’s inestimable the lead in this, but in many cases they are doing Director, Neil MacGregor, and Mashable’s Pete so in response to public demands. This greater Cashmore and Lance Ulanoff recount. public engagement has gained force through new The principles of best practice are surprisingly media, or what is now being described as the “public clear and straightforward when dealing with public information space” – the swirling sea of content affairs, even though there are many local variations that surrounds and connects us in the digital world. around the world. Transparency is the key. In a In this atmosphere, companies are facing difficult world that is increasingly open, it is important for questions with increasing frequency on issues companies also to be open and straightforward. such as tax, jobs, the environment, and ethical The winners will be those who walk towards difficult sourcing. Also, it is now widely appreciated that issues in a constructive, honest way without resorting failure to adequately articulate the full benefit of to spin or obfuscation. It is a stronger and safer an organization’s social purpose can have serious course of action to be clear and honest about your consequences for its reputation, market value, goals. That has always been the basis for good and even its very existence. corporate communications and it is no different when dealing with public relationships. As a consequence, business leaders find they must perform on a much more public stage than ever I hope you enjoy this edition and thank you for before and have to acquire the skills of politicians. your time. This has been starkly illustrated on both sides of the Atlantic by political committee hearings, which have become an increasingly popular (and populist) form ALAN PARKER ­— Chairman, Brunswick Group

Brunswick Issue seven 3 Review Summer 2013 CONTRIBUTORS

GUEST CONTRIBUTORS

Pedro Passos Coelho Sir Hector Sants Choo Chiau Beng William Kennard — prime minister, — head of compliance — ceo, keppel corporation — us ambassador to the eu portugal & government page 27 page 32 page 16 & regulatory relations, barclays page 22

Thero Setiloane  Luis Alberto Moreno Francis Yeoh Michel Barnier — ceo, business leadership — president, inter-american — managing director, — european commissioner south africa development bank ytl group for internal market & services page 38 page 44 page 46 page 48

Alan Murray Vera Brandimarte Neil MacGregor Pete Cashmore Lance Ulanoff — president, — editor-in-chief, — director, british museum — founder & ceo, — editor-in-chief, pew research center valor econômico, brazil page 64 mashable mashable page 51 page 60 page 70

Troy Carter  Benn Steil — lady gaga’s manager, — author and director founder & ceo, of international atom factory economics, council page 76 on foreign relations page 80

4 CONTENTS

PUBLIC AFFAIRS FEATURES AND DIFFERENT TAKE

06 32 56 public affairs transatlantic dialogue brunswick insights: m&a Politics and business intertwine more than ever US Ambassador to the EU, William Kennard, Our annual survey finds dealmakers expecting tells Philippe Blanchard about plans to strengthen 2013 will be a busier year for transactions. the transatlantic partnership Steven Lipin and David Ashton report

08 36 60 ready for your close-up a more special relationship after the hype Preparing for a political committee hearing? A new US-EU trade deal will have a profound effect Brazil rode high on the BRICs story, but as Vera David Seldin and Erik Hotmire in Washington, DC on companies across the globe, explain Brandimarte, Editor-in-Chief of Valor Econômico, and Andrew Porter in London advise Neil McMillan and David Sutphen argues, it is now working out its own growth narrative. Interview by Ana Paula Pessoa and Thomas Kamm

13 38 64 deal traffic control master of its fate where knowledge is free Michele Davis and Su-Lin Cheng Nichols on Thero Setiloane, CEO of Business Leadership Neil MacGregor, Director of the British Museum, avoiding political flak when steering a deal home South Africa, on lessons from a hard year tells David Yelland about running the “lending library of the world”

16 40 70 the art of political china’s charm offensive a cyberspace odyssey persuasion There are important messages for business Mashable’s Pete Cashmore and Lance Ulanoff Portugal’s Prime Minister, Pedro Passos Coelho, in China’s new, more assertive diplomacy. explore the implications of the “connected generation.” tells Rurik Ingram about holding the public focus St. John Moore and Ilse Schache report Interview by Jesse Comart

20 44 76 campaign trail lessons pressure management taming the fame monster Communications styles in politics and business President of the Inter-American Development Troy Carter, Lady Gaga’s manager, tells David Sutphen are converging, say Graeme Trayner Bank, Luis Alberto Moreno, on building social what brands can learn from Little Monsters and Julie Andreeff Jensen consensus for big infrastructure projects

22 46 80 banking’s new rules rules of attraction losing the deal Sir Hector Sants tells Andrew Garfield about the Francis Yeoh, MD of Malaysia’s YTL Group, on the John Maynard Keynes was a brilliant economist but changing regulatory landscape and his new role merits of clear government rules for companies his lack of negotiating skills were exposed at Bretton at Barclays Woods, writes Benn Steil in his new book

27 48 83 city of industry the bank job the shock of the new Keppel’s CEO, Choo Chiau Beng, answers European Internal Market Commissioner, The first standards war of the modern era had some critics of Singapore’s unique economic model. Michel Barnier, on navigating the Brussels macabre consequences, writes Robert Moran Interview by Christina Pantin bureaucracy. Interview by Philippe Blanchard

30 51 86 reflections on the revolution truth, justice – and facts critical moment Can social media improve government-business Alan Murray tells Darren McDermott about How President Barack Obama embraced a new way dialogue in the Middle East? Wajih Halawa life after The Wall Street Journal and joining to declare victory. By Andy Rivett-Carnac and Zein Bushnaq report the Pew Research Center “fact tank”

Brunswick Issue seven 5 Review Summer 2013 Business and politics have always endured a turbulent relationship, but they have come into collision with alarming regularity over the past five years. Part of that is the fallout from the financial crisis, as leaders of all institutions seek to win back legitimacy and public confidence. But more fundamentally, business leaders and the political classes are both struggling to adapt to the challenge of what is being called the “public information space.” This mass of content sharing and social networking is giving people an influence and power it has never had before. Today, everyone is in a position to scrutinize, criticize, commend, and complain. The result is a world of instant analysis and armchair auditors – in which no single voice commands respect and authority in quite the same way any more and some say public discourse has suffered as a result. In this section, we hear from a Prime Minister, senior bankers and respected diplomats about how they are dealing with the aftermath of the financial crisis, rebuilding public trust, and setting the agenda for renewed growth. We look at how governments in Asia, the Middle East, Africa and Latin America are exploring new ways of engagement with a wider range of stakeholders. In this age of accountability, we hear how business executives can find themselves in the public spotlight, for example, when called on to testify before politicians about the ramifications of a business decision. We also examine the way trade negotiations can have a critical effect on a business’s survival and success. The lesson that emerges from all of this is that no business today can afford to ignore politics. Business and public affairs are entwined like never before. READY FOR YOUR CLOSE-UP Political committee hearings are often an arena for the ritualistic humiliation of those called to testify. Executives can mitigate the risks by being prepared — US congressional committee hearings believe nicotine is not addictive?” If a video could be said to “go a high-stakes game for viral” in the pre-internet age, this one certainly did – the those called to testify camera-ready scene played out over and over again on news broadcasts across America, and is now looked back on as a by david seldin and erik hotmire, pivotal point in society’s long debate about tobacco regulation. brunswick, washington, dc Congressional hearings are a high-stakes game for executives, as anyone who saw the ordeal endured by car In the early 1950s, a series of hearings chaired by Estes Kefauver, executives in 2008 will recall. Flash back to the depths of the a lanky, drawling Senator from Tennessee, became a political financial crisis, when General Motors and Chrysler were in dire and media landmark in America, captivating the country in a need of help from government in order to avoid bankruptcy. way that no previous Congressional proceedings had. CEOs were summoned for what promised to be an extremely The Senate Committee to Investigate Crime and Interstate high-profile hearing of the House Financial Services Committee. Commerce (the “Kefauver Committee”) held its sessions in 14 Even before the session began, a swarm of press homed in on the cities across the country, hauling mobsters and their alleged corporate jets that the executives used to ferry themselves accomplices in for questioning by Senators. Taking place at a to Washington. A populist frenzy was further stirred up by time when television was becoming all-pervasive, the hearings Committee members competing for TV air time. The situation were broadcast to live audiences that regularly exceeded 20m, went from embarrassing to humiliating when the politicians and featured moments such as mobster Frank Costello asked the CEOs if they would consider forgoing some of their nervously rubbing his hands together while “pleading the fifth,” hefty compensation as part of a bailout agreement – a question and red-haired Virginia Hill Hauser, in a silver mink cape, coyly for which none of the executives seemed prepared. The already- ducking questions about her dealings with Benjamin “Bugsy” weak public support for the aid package diminished considerably Siegel and other leading organized crime figures. in the wake of the hearings. It was pure theater and made a star of Kefauver, who went on The private jet debacle highlighted a critical communications to run on the Democratic Party ticket in 1956 as presidential issue: the disconnect between perceptions in the corporate and candidate Adlai Stevenson’s running Washington worlds. Surprisingly, that mate. The Kefauver Committee set the risk was raised in internal discussions at prosecutorial tone for subsequent lower levels at one of the auto companies, hearings, which have included the “knowing your stuff but was never considered seriously notorious Army-McCarthy hearings, is important. at headquarters. Watergate, the Fulbright hearings on but judging “That whole hearing, we failed to Vietnam, and Iran-Contra. the political narrative match the tone to the circumstances,” In 1988, the “made for TV” nature of is even more critical” says one car company adviser. “The the proceedings was tacitly acknowledged company was very used to a style of when Congress opened the cavernous communication that was all about Central Hearing Facility in the Senate projecting strength, and didn’t Hart Building, about which Senator Daniel Patrick Moynihan understand that what Members of Congress were looking for quipped, “I think we must have borrowed the design from the from an industry seeking this kind of help was humility. By Supreme Soviet.” not paying close enough attention to the audience and specific Members of Congress have good reason to covet the circumstance, the optics really suffered and we endured a attention that hearings bring. Not only are they an effective stage serious setback.” for ambitious politicians, but hearings can also function as a How do corporate leaders avoid getting snared in such sharp-edged tool to advance a policy agenda. That fact was traps? There are a few key things to keep in mind. Primarily, starkly demonstrated in 1994 when Ron Wyden, a member of they should remember that it is a show – a show run by the the House Energy and Commerce Committee, ignited a politicians. Executives have had a tendency to approach these firestorm with a simple, dramatic question to the chief hearings as if they are taking an exam and spend their executives of seven major tobacco companies: “Yes or no, do you preparation time trying to cram facts and figures into their

Brunswick Issue seven 9 Review Summer 2013 heads. Knowing your stuff is important but judging the political narrative is even more critical. If you want to know how to prepare for a Congressional hearing, look at the way most Members of Congress do it, which is to focus mainly on how to ask a question that will get TV time and advance their agenda. Often, the primary goal of committee members in a hearing is to push a company representative to make some particular statement, whether one of contrition, or an acknowledgement of responsibility, or perhaps the acceptance of a “commonly- believed fact,” regardless of the evidence. Company representatives should avoid getting boxed into corners by understanding clearly what committee members are likely to be looking for, and formulating an acceptable response that they can deliver in the opening statement. Otherwise, they risk becoming hostage to the politicians’ agenda. Executives may ask whether they are compelled to testify. Although negotiations often take place with committee staff about who should appear and when, frequently the answer is “yes” – in effect, a subpoena; indeed sometimes it literally is one. Failure to appear can result in citation for contempt of Congress, which can result in financial penalties and even prison. Pleading the Fifth Constitutional Amendment right to decline to testify on the grounds that it may incriminate is You’re not on the list possible, but obviously should be avoided in all but the most extreme circumstances. It’s not exactly the hottest club in town, but look down the Though it may seem obvious, company representatives hallways outside Congressional committee rooms in the should carefully run through a media appearance checklist in hours before hearings and you’ll often see a group of fairly advance of a Congressional committee appearance: scruffy-looking, mostly young people waiting in a well- organized line.  Why are they there? You could be excused for thinking g Body language and tone of voice communicate as much as these are students, activists, or simply interested citizens, words. It is vital to project the appropriate balance of respect checking up on their legislators. But as hearing time and confidence. approaches, the line transforms radically as the queuers g Don’t lose patience. Each committee member will treat their are replaced by well-dressed lobbyists. It eventually five-minute question period as their own mini-hearing, which becomes clear that the former were hired by the latter means witnesses get variations on the same question over and to reserve seats at the hearings, which are available to over. Stick to the script and go with the flow of the hearing. the public on a “first come, first save” basis.  Congressional committee staff and the “line sitters” g Prepare for protesters. The higher profile the hearing, the closely follow well-established rules of etiquette, and greater the likelihood it will be interrupted by chanting, securing a seat is seen by lobbyists as an essential part sign-waving, or other forms of protest. Have a strategy for of doing business. “So much work goes into getting ready for handling it. Generally, staying calm and keeping your a big hearing, lobbyists don’t have the time to stand in line attention on the committee chair works. for hours as they prepare,” says Larry Harlow, a prominent g Don’t guess. It is always better to admit to not having a lobbyist. “But you want to be sure to have a seat. Being in particular fact at your fingertips than to say something that the room can make a big difference as a hearing plays out. You need to be there to protect your clients’ interests.” turns out to be inaccurate. Promise to get the questioner the Line sitting is an industry unique to Washington. information later, and then make sure that the appropriate follow-up happens.

10 Dealing with elected officials who may lack knowledge of Culture, Media & Sport Committee, “This is the most humble their business is a major challenge for executives. Allen Ertel, day of my life,” before narrowly avoiding a protestor’s pie in the a successful entrepreneur who served three terms in Congress, face thanks to the intervention of his wife Wendi, who was sums up the problem: “The biggest difference between politics sitting behind him in the committee room. and business is that in business I don’t have to deal with people Meantime, the Treasury Committee was the arena in which who don’t know what they’re talking about.” a leading banker was grilled so mercilessly that he took the CEOs spend most of their time meeting with people who are unprecedented decision to hand back his knighthood after well briefed. Politicians, on the other hand, must engage the committee issued its damning report. Sir James Crosby, frequently on issues of which they have scant knowledge. formerly CEO of HBOS, reverted to plain old James. But showing up a Congressperson’s lack of knowledge is a risk Given the higher profile of some Parliamentary committees, not worth taking. It is best to show deference – and explain Clerk of the House Robert Rogers, the House of Commons’ top not lecture. adviser on procedure, issued a report last summer reviewing the Understanding the media and political dynamics of a hearing powers of committees. As in the US, the UK House of Commons can help CEOs not only avoid the pitfalls but advance their own has the power to cite for contempt people who refuse to appear, agenda. Take the auto executives. A few weeks after their corporate though penalties are limited and rarely applied. The penalties jet fiasco, the same CEOs came back to Congress but this time for lying to the committee are more severe, though the decision better prepared. Ford CEO Alan Mulally – supporting his rivals’ to prosecute rests with the courts and the burden of proof is request for funds – drove to Washington in a hybrid car and high. While Rogers’ report leaves open the question of whether said he would take just $1 in salary and sell Ford’s corporate committees should have greater powers, it notes that censure jets if it ever needed bailout money. The funding for GM and alone can do considerable reputational damage. Chrysler came through, and ultimately became a popular talking “In the nature of things, most people who fall foul of a select point in President Obama’s re-election campaign. committee will be people in public life, or who in some way carry public responsibilities,” Rogers wrote. “The finding by the David Seldin, a veteran of Capitol Hill and the White House, is a Director House of Commons ... that an individual is in contempt, and in Brunswick’s Washington, DC office, specializing in corporate reputation and public affairs. making specific criticisms of the individual’s conduct, must be Erik Hotmire is a Director in Brunswick’s Washington, DC office, providing hugely damaging to that individual.” strategic counsel in crisis, litigation and regulatory matters. He has served Writing for the London School of Economics’ (LSE) politics in senior positions at the White House, SEC and US Senate. blog, Adam Lent, director at the Royal Society of Arts, and a former head of economics at the Trades Union Congress says, “Select committees have effectively become public courts where individuals are tried not on the veracity of their case but on how well they manage to perform in the committee room — UK parliamentary select committees bear pit. And the sentence, should one’s performance not be up how to avoid getting pie to scratch, can be a severely damaged reputation or even loss of employment.” on your face As in the US, politicians are well aware that the higher media by andrew porter, brunswick, london profile their committees are enjoying is an excellent platform to advance political agendas. UK Parliamentary Select Committees used to be rather staid and Margaret Hodge, a Labour Party politician and chair of the sleepy affairs, concerning themselves primarily with the inner powerful Public Accounts Committee, last November paraded workings of government departments or arcane constitutional executives from Google, Amazon, and Starbucks in front of the issues. In recent years, however, committees have been thrust nation to ruthlessly probe their tax arrangements. This followed into the public spotlight as their members have aggressively gone a report in October 2012 by Reuters which found that Starbucks after big corporations and their high-profile executives. had made “perfectly legal” tax payments of just £8.6m ($13.3m) We have been treated to such spectacles as media baron on £3bn ($4.8bn) of coffee sales since starting business in the Rupert Murdoch declaring before the House of Commons UK in 1998.

Brunswick Issue seven 11 Review Summer 2013 The committee hearing g produced a Bible and forced him topped TV news broadcasts and to give evidence under oath. millions saw the company g Repetition. If you are appearing executives struggling to deal with alongside other witnesses, do unexpected questions about the not repeat what they say. If you “morality” of the tax code – it was agree, say so, and move on. no longer sufficient to say simply g Jargon. It always brings a rebuke. “we obey the tax laws.” “individuals are tried Hodge says, “They were not not on the veracity The power of committees has prepared and came in with a of their case but on how well been growing in recent years, but certain arrogance. We called they manage to perform it was the banking crisis that Starbucks and then it was a redefined their role as populist question of deciding who else. We in the committee room forums for politicians to vent actually looked through the bear pit” anger on behalf of the public. A newspapers to see who was paying thorn in the side of the banks is the least tax. It was literally like Andrew Tyrie, the independent- that – rather fortuitous, but it could have been other companies.” minded chair of the Treasury Committee. A former bank Hodge adds, “We are in a new world where the private sector economist himself, he has demonstrated that he is prepared to plays a much bigger role in public life ... What these episodes go against fellow Conservative Party members, including show is that reputation matters. ” Chancellor of the Exchequer George Osborne, in taking a hard In the wake of the hearings, Starbucks said it would voluntarily line with bank executives, some of whom were dragged before pay more UK tax. “These decisions are the right things for us the committee for what was essentially a public flogging. to do,” said Kris Engskov, head of Starbucks UK and Ireland. Political grandstanding aside, it is important to recognize “We’ve heard that loud and clear from our customers.” that at least some committee members feel a sense of duty in Members of committees and executives who have survived increasing their scrutiny, particularly in banking. As one bank hearings say there are key points to remember when notified adviser commented, “The select committees have stepped into a that you might be asked to testify: void. The regulators and ministers failed to hold business to account and so they are now doing it.” g You could be informed of your appearance date just a few days The debate about growing committee powers continues, before, so prepare as soon as you know you might be called. especially as new reforms are put in place to reduce their number g Research which committee members tend to ask the headline- but increase their power. Answering Adam Lent on the LSE’s grabbing questions, anticipate those questions and establish politics blog, William Brett of Cambridge’s Judge Business your response. School, says, “Select committees are able to operate in the ... g Get the feel of the occasion – watch videos of previous space between the law and private entities. Ideally, their inquiries committees or sit in on a hearing in the public gallery. feed into the process of changing the law so that the public g Accept that the dice will be loaded against you. interest is not so compromised by otherwise relatively g Be humble. This is a rare moment when backbench MPs have unaccountable blocs of power.” some authority, so let them have their moment. In any case, it seems certain that the UK Parliamentary committee system is traveling down the same path as the US, Practitioners who have prepared executives for hearings say that where wider powers and a higher profile mean they pack a greater the things that annoy committee members include: punch. “It is definitely moving that way,” says David Ruffley, a Conservative MP and a member of the Treasury Committee since g Ignorance. If you do not know the answer to a question, say so, 1999 who was critical of banking oversight from early on. and promise to send in a supplementary memorandum. Business executives can’t say they weren’t warned. Evasiveness. The Public Accounts Committee was recently g Andrew Porter is a Director in Brunswick’s London office and specializes in public so annoyed by a lawyer from HMRC (the tax office) that they affairs and media. He is a former Political Editor of The Daily Telegraph in London.

12 It is one of the most intense times for a In Washington, DC, this is governed by the company: making a significant acquisition Committee on Foreign Investment in the DEAL means following a strict due diligence United States (CFIUS), a collection of federal program to deal with all the financial and agencies led by the Treasury Department, TRAFFIC regulatory hurdles. However, companies are which can deny permission for a foreign increasingly finding that they must also investment that the committee judges would consider the myriad political obstacles that represent a significant risk to national security. CONTROL can disrupt their plans. Cases that are candidates for CFIUS When it comes to acquisitions, politics scrutiny often garner press interest too. Navigating a deal safely is best thought of in its broadest sense. “There are certain companies and countries home means avoiding Dealmakers would do well to consider the full and sectors that pique my interest because panoply of actors who might be motivated to I know they also attract the interest of political turbulence disrupt their deal. A potentially disruptive CFIUS and could be controversial,” says force, for example, could be a competitor Kirchgaessner. “A company’s preparedness creating political obstacles to a deal for purely or lack of preparedness for the CFIUS process by michele davis commercial reasons. is also something I look out for as it can be and su-lin cheng nichols, As Stephanie Kirchgaessner, Washington a good sign of how the review is likely to go. brunswick, washington, dc correspondent for the Financial Times, says, I try to glean as much information as possible “I have gotten pitched by parties that are for our readers about this very secretive and opposed to a deal – often for competitive opaque process.” reasons – and are trying to drum up opposition Indeed, the language of CFIUS can be on the Hill on national security grounds. I have vague – deliberately so – in order to give the a high degree of skepticism about pursuing government and its agencies (which include such stories, but whether I do or not, these Homeland Security and Defense) plenty of pitches do catch my attention.” scope to determine what types of deals might Activist groups, similarly, might care little pose a threat to national security. This can about a specific transaction but could see it run from fairly obvious, off-limits transactions as an opportunity to stoke a policy debate or in the defense sector, to assessments more to lobby for investment and jobs. It can be difficult to predict, such as those that might easy to become ensnared in a broader debate impact on “critical infrastructure.” – and once that happens, it becomes far Earlier this year, a highly publicized more difficult to control your own destiny. CFIUS intervention derailed a Chinese Governments around the world have been company’s deal that, on the face of it, putting foreign acquiring companies under seemed to involve fairly innocuous wind greater scrutiny, especially if there is a farms in the Pacific Northwest, but turned question of national security involved. out to be a challenging transaction.

Brunswick Issue seven Review Summer 2013 Ralls Corporation, a Delaware-incorporated was ordered to divest the assets within Headwinds company owned by Chinese nationals who are 90 days. Deals covered by CFIUS, 2009-11 by country also senior executives in Sany Group, a Ralls then took the unprecedented step UK Chinese wind turbine maker, purchased of challenging the Presidential Order in 26% interests in four wind farm projects in Oregon court, which decided to hear the case on the in spring 2012. The plan was to build Sany grounds of Ralls’ claim that it was denied France 10% wind turbine generators on the sites in order property without due process. It proved to demonstrate their reliability. futile, as the court found that the law allows Canada However, the sites overlapped restricted the President to exercise wide powers 10% airspace used by the US Naval Air Station at without explanation because of the classified China Whidbey Island and neither Ralls nor the nature of national security decisions. 7% seller, a unit of Terna Energy, which is a The risk associated with foreign Israel division of a Greece-based group, had sought investment in the US is often linked with 7% CFIUS clearance prior to the deal. An China. However, transactions covered by Japan application for CFIUS approval was filed only CFIUS have been overwhelmingly European. 7% after it was requested. The UK, traditionally the largest foreign As John Villasenor wrote in Forbes investor in the US, accounted for 26 percent Netherlands 6% magazine, companies that have obtained of transactions covered in the 2009-11 CFIUS clearance before a transaction are period, according to CFIUS (see chart). Sweden usually safe from future actions because In 2011, the French defense company 6% of a “safe harbor” provision, but “when foreign Safran won approval for its purchase of US Rest of the world buyers decline to seek pre-transaction company L-1 only after agreeing to establish 22% approval, things can get far more complicated.” a three-person proxy board to manage Ralls had all of the legal documentation sensitive US contracts, which make up Source: CFIUS Annual Report, December 2012 Percentages do not total 100 because of rounding and permits in place to build turbines and roughly 80 percent of L-1’s business. connect them to the power grid, and Clearly, the national security implications proceeded to do so after the purchase of a deal are essential considerations in a was completed. However, the Navy had broader public affairs strategy, and too often previously written to the Oregon Public Utility a foreign acquirer without a pre-deal public Commission about potential “negative affairs plan is caught off guard, having security implications” of the sites’ locations, expected to stay out of the public eye and and having been requested after the avoid questions until a deal is done. fact to file notice of the transaction, Ralls was A disrupter of a deal can often get then ordered by CFIUS to halt production. Members of Congress to repeat and amplify Attempts to sell the wind farms were their concerns, which then spawns more blocked, and in September 2012 Ralls media coverage, and escalates into a

14 negative media cycle, potentially undermining BGI was transparent and responsive, the deal. and the accusations did not gain traction. This can be avoided. A good illustration Almost no one in Washington took the bait of best practice, for example, was the recent and no Member of Congress ever publicly approval of the purchase by BGI-Senzhen, a voiced concern. Chinese genomics firm, of California-based “In a first-of-its-kind international Complete Genomics. Before announcing transaction, we knew we needed to Five questions to ask your deal team the transaction – believed to be the first complement our legal strategy with a forward- successful acquisition of a publicly-traded leaning strategy of telling the company’s story 1. What broader political and policy dynamics US company by a Chinese company – BGI to the media and to other stakeholders,” said could this deal potentially stir up? had established strong partnerships in the Arthur B. Culvahouse Jr of O’Melveny & Myers, 2. Which stakeholders, if they mount US and a reputation for doing work that BGI’s legal counsel on the deal, and a former opposition, pose the greatest threat advanced medical knowledge, including with White House counsel. to the deal? the Children’s Hospital of Philadelphia to So what is the best plan for success? 3. Which third parties can be enlisted research pediatric brain tumors, and with A robust public affairs plan will not overcome to help? advocacy organization Autism Speaks to true national security risks. But where 4. What are the reputational assets and create a sequenced genome library. there is a gray area that could be easily liabilities of the parties to the deal? Still, BGI was not widely known in the US politicized, an acquirer needs a proactive 5. How will you shape your messages to and a competitor, Illumina – like Complete, strategy to inform all stakeholders of the be more effective, given the political based in California – stepped forward to try benefits of the transaction and to address environment? to purchase Complete itself, and attempted potential political arguments. A full analysis to raise national security concerns about of (and preparation for) any risks must BGI in an appeal to shareholders. anticipate and head off critics – and this BGI tackled the national security issue includes any left-field attempts to portray head on. The company’s Chief Operating a well-intentioned deal as a threat to the Officer, Ye Yin, wrote to Complete CEO Clifford nation’s security. Reid (a letter filed with the Securities and Exchange Commission), stating, “Illumina Michele Davis is a Partner in Brunswick’s knows quite well from its business Washington, DC office, and former Assistant relationship with BGI that there are no Secretary for Public Affairs at the US Treasury Department. She advises on cross-border M&A national security issues implicated ... Illumina communications, crises and public affairs. has been a strong supporter of BGI’s business and has repeatedly praised BGI as a Su-Lin Cheng Nichols is a Director in Brunswick’s Washington, DC office and has advised on business partner.” He went on to detail the a number of cross-border transactions. She business relationship and the benefits of specializes in public affairs, media relations BGI’s acquisition of Complete. and corporate reputation.

Brunswick Issue seven 15 Review Summer 2013 Leadership in tough times is about keeping focused on the big picture and not getting lost in day-to-day difficulties, Pedro Passos Coelho, Portugal’s Prime Minister tells Brunswick’s Rurik Ingram

Ronald Reagan, in answering a reporter’s question about his political with current economic strains. “One needs to look at the big picture that legacy, once remarked, “I wasn’t a great communicator, but I we have ahead of us,” he says. “The biggest challenge is to mobilize communicated great things.” The art of political communication has people so they can carry out these transformations and not get lost in changed radically in the age of mass media, but its central objective for day-to-day difficulties. Unless we remain focused on the final goals and national leaders is to maintain focus on the “great things” that Reagan accept the difficulties along the way, we will not be able to maintain our referred to, the big ideas, the overriding goals for society, and not to get momentum and see reforms through.” distracted by the inevitable political squalls that come and go. That, of Those “day-to-day difficulties” refer to the consequences of a course, is not easy to achieve and is particularly challenging during program of painful reforms tied to a €78bn ($101bn) debt bailout. Some times of great crisis – and, really, when are governments not dealing of the measures – domestic spending cuts, including public sector wage with some kind of crisis? cuts – have led to opposition from many constituents, including some of Leaders of the European Union have a further challenge – not only to those usually supportive of the PSD. However, Passos Coelho’s address traditional national interests but also the greater “European government has so far weathered the storm. According to the Economist Project,” which in historical terms is still a fresh and, in many ways, Intelligence Unit, the analysis arm of The Economist newspaper, “Midway untested concept. For Portugal’s Prime Minister, Pedro Passos Coelho, through the program, which provides fiscal financing through to mid-2014, the need to support both national and European goals is as acute as for the coalition has received broadly positive appraisals from the troika of any of his fellow EU leaders. His center-right Social Democratic Party international creditors (the European Commission, the IMF and the (Partido Social Democrata, PSD) was founded in the 1970s in the wake European Central Bank). However, the government’s domestic standing of Portugal’s transition from dictatorship to democracy and, like post- has fallen, as the rise in unemployment has far outstripped official Franco Spain, the country’s accession to the EU in the 1980s (part forecasts. With both coalition parties backing plans for spending cuts of the “Mediterranean enlargement”) played a significant role in of €4bn during 2014-15, the risk of a political crisis in the near term cementing the country’s democratic development and the modernization appears low.” of Portugal’s economy. Portugal’s favorable reviews include a Financial Times assessment that Since the 2008 global financial meltdown triggered a European the pain is paying off; reports show that exports for 2012 were up by 5.8 sovereign debt crisis, putting severe strains on the euro currency system percent, while imports fell by 5.4 percent, thus cutting the trade deficit by of which Portugal is a founding member, it has become a huge challenge €5.6bn to €10.7bn. The FT noted, “Portugal’s third consecutive year of for European Prime Ministers such as Passos Coelho to resist the export growth above 5 percent is likely to be seen by eurozone policymakers temptation to play to their domestic political audiences at the expense of as evidence that the austerity measures they advocate for the region’s broader European cohesion. debt-ridden periphery are working by forcing down wage and other Passos Coelho says that his most important communications production costs to make exports more competitive. A recent report by objective is to keep the electorate focused on long-term goals as it deals Standard & Poor’s, the credit rating agency, said Portugal was

16 Pedro Passos Coelho

Pedro Passos Coelho was born in Coimbra northern Portugal in 1964, lived in Angola until the age of nine, then spent his teens in Vila Real, also in the north. He holds a degree in Economics from the Lusíada University, Lisbon. Passos Coelho was involved in politics from an early age and was a member of the National Council of Social Democratic Youth. He rose through the ranks of the Social Democratic Party to become Deputy Leader and Spokesman in 1991, Leader in 2010, and Prime Minister in June 2011. He has held senior management positions in several private sector energy and environment companies.

Brunswick Issue seven 17 Review Summer 2013 one of several peripheral European economies that was ‘adjusting shrill demands for help … One may wonder if judges are best placed externally with speed,’ with exports leading the way. This could help to make economic policy or to rule dispassionately on public sector salary Portugal, Ireland and Spain to return to economic growth earlier than cuts.” Even though Passos Coelho admitted that this development anticipated, the report added. Portugal’s goods and services exports were raised some uncertainties as to the ability to deliver successfully what had at an all-time high, S&P said, with sales to non-EU countries, especially been agreed with international partners, the Prime Minister made a China, Brazil, Angola, Mozambique and the US, continuing to grow rapidly.” televised address two days after the Constitutional Court’s ruling, Positive reinforcement like that is necessary when navigating a reaffirming his strategy and vowing to close the new gap with fresh cuts financial crisis like the present one, but it tends to help more with without raising taxes. “external audiences” than with the electorate whom you serve, says Passos Coelho. “Major imbalances that have accumulated over the years STRATEGIC DIRECTION have created an image of Portugal that is now being rapidly corrected, and Though active in politics from an early age, Passos Coelho also has this is very impressive to foreign observers. However, internally this is not considerable private sector experience, having held senior management as obvious. We use the same language and the same terms with both positions in several companies in the energy and environment fields over foreign and domestic audiences, but we often receive a more positive the past decade, while also lecturing and serving as Chairman of the Vila response from those looking at the country from the outside.” Real Municipal Assembly. Has that experience helped him in his role as But the Prime Minister emphasizes the importance of a consistent Prime Minister? message to both external and internal audiences, even though there “A great deal,” he says, “because in a way what is most important in a may be a cost in terms of domestic politics. “Certain politicians feel the company also turns out to be decisive on a country level: that is, to maintain need to give different speeches depending on whether they are speaking a strategic approach. As the leader of a company you will always have to audiences that are overseas or at home,” he to answer to your shareholders, consider who says, with many tempted to blame the country’s you are up against in the market and prepare for situation on external forces in order to gain any threats you might face – even if you are doing sympathy from the electorate. That’s a fool’s well. Likewise, when leading a country, you must game in the world of modern communications, “we use the same language have a clear strategic direction. Only then, for he says, when “whatever is said today in and the same terms example, is it possible to cope with the task of Parliament, or during a company visit, is with both foreign and approving very difficult budget cuts that include immediately heard in all corners of the world, be sharp spending reductions – especially in the it through diplomatic channels or global domestic audiences” social area – while at the same time raising communications. So, maintaining a consistent taxes. People will only understand these message on both fronts [internally and measures if they understand the strategic externally] is essential. My goal has therefore always been to use the direction you’re taking. What we are doing in Portugal, thanks to the new same language, the same explanations and the same communications European rules and also the experience that many of the people in focus inside and outside the country.” government bring from the private sector, is not simply to present a budget for the next year, but to lay out the medium- and long-term prospects for the EXTERNAL PERCEPTIONS Portuguese economy.” Recent studies confirm the importance of consistent communications This cross-fertilization of ideas between business and politics is not from politicians across the EU. An analysis in November 2012 by Christian new. Since industrialization, there have been businessmen in politics and Conrad and Klaus Ulrich Zumbach of Heidelberg University, for example, politicians in business – but the nature of communications for both found that statements by European politicians in relation to the sovereign business and politics has changed radically in recent decades. Just as debt crisis had a significant and immediate effect on European financial the senior reaches of private sector management have become more and markets, with statements about measures being taken by the so-called more “professionalized,” so have the senior political ranks. Furthermore, periphery countries having the strongest effect on markets. It follows that the growth of new digital platforms and devices in the past decade, inconsistent or conflicting messages from a country negotiating a debt including mobile and social media, has changed the nature – and speed – package and the central agencies with whom they are negotiating of political communications. will have a negative effect on bond yields; thus a country’s cost of The Passos Coelho administration has followed this trend. But for all borrowing will rise. And that ultimately conflicts with the interests of the that politics has adopted of the private sector’s approach to domestic audience. communicating, the nature of politics remains fundamentally different, External perceptions of the country can still be problematic. “In Passos Coelho recognizes. “There is a great difference: companies can be Portugal, the strikes that sometimes happen are often seen abroad as a more agile than public structures, especially in Portugal where, in a way, we sign that there is strong resistance to reform,” says Passos Coelho. “But still have a very rigid state. When an economy is dependent on public democratic countries have strikes. The system works. The democratic regulation and this regulation is slower than the markets and economic mechanisms that exist in any country should not create excessive levels agents, it becomes a burden and our state is still heavy and slow. This is of uncertainty or jeopardize reputations. This has been a big challenge for one of the big tasks we have ahead of us: to reform the state into a more us in terms of communications.” agile and flexible instrument so it can do what it has to do. A CEO is able, There is another big challenge for Passos Coelho. In April, Portugal’s after drawing up an action plan, to have tasks implemented and see the Constitutional Court declared that a number of measures contained in the results relatively quickly. With a country, the results take longer to surface.” State Budget for 2013 were unconstitutional. But the Prime Minister might Amid the reality of rapid political life cycles and the sclerotic pace of take comfort from some media reaction. The Economist wrote, “… since its bureaucratic change, Passos Coelho remains positive. “This is the rescue, Portugal has been most devout in repentance … without Greece’s transformation I hope to see materialize in Portugal, to make the results of histrionics, Italy’s foot-dragging, France’s carping about austerity or Spain’s our actions more visible.”

18 Just as the Obama administration found the transition from running a developing countries. Is that still the case? “Portugal has a very privileged vibrant and successful election campaign to the business of running relationship of openness to the world – much of its history is about a government exceptionally challenging, so Passos Coelho’s government relationships, rather than isolation. This gave us a great ability to relate to has found this transition tough. “There are clear differences between the the outside world and to trade cultural values with countries on the other intense scrutiny of a Prime Minister and that which a candidate from the side of the Atlantic, Pacific and Indian oceans. This rich heritage of opposition would receive. When we are part of the opposition, we want globalization is so relevant today. We have an effective and direct to present the people with an idea of change. When we are in the relationship with many nations that are in the community of Portuguese government, we must not lose sight of the dream of change, but also language countries [see map below]. We have access to markets that remember that we have to deliver these changes. People don’t want goes beyond these individual countries, so when we look at Brazil we are to see a big difference between what was promised and what is executed. looking at all of Latin America; when we look at Angola and Mozambique, In my case, I have tried to close this gap and meet expectations.” we are looking at not only Southern Africa but also an important part of sub-Saharan Africa; when we look at Timor-Leste, we are looking at REPUTATION Singapore and Indonesia.” Though Portugal has gained respect from international financial markets, Portugal also has an interesting relationship with China, rooted in its the country’s sovereign debt rating, along with its reputation, was dented historical links with Macao, the Chinese region which formerly served as together with several other European countries when rating agencies a Portuguese trading post. “Today we have the opportunity to develop, downgraded their debt because of the ongoing eurozone crisis. How has possibly more than other European countries, a relationship with China Passos Coelho responded? that will be crucial for global trade in the next few years. As such, I see “A good reputation can be destroyed in a very short time,” he says. Portugal as an actor in the globalization process in the sense that we “And a good reputation takes a long time to build. The imbalances are can be in several markets with confidence and act as an anchor for being corrected at a faster pace than we had expected. Commitment to future relationships.” our partners is sacred in implementing our obligations. This is something When Passos Coelho considers Portugal’s place in the world, he that the country acknowledges and recognizes, and those who we deal returns to one of his biggest challenges at home. “Most of all, we need to with, such as the troika, know we respect our agreements. I believe our continue reforming public policy in order to allow the Portuguese economy reputation – of transparency in addressing problems and carrying out our to grow and to liberate the creative forces of the Portuguese people.” agreements – is now being entrenched. Portugal has always, in boxing terms, punched above its weight in Rurik Ingram is a Partner in Brunswick’s London office and has extensive certain areas of the world, particularly in what are now described as knowledge of the Latin American, Portuguese and Spanish markets.

Lusophone map of the world

One of Portugal’s most successful exports is its language. Prime Minister Pedro Passos Coelho explains, “We have an effective and direct relationship with many countries that are in the community of Portuguese language countries … and Portugal we have access to markets that goes beyond these individual countries. So when we look at Brazil, we are looking at all of Latin America, when we look at Angola and Mozambique, we are looking at not only Southern Africa but also an important part Cape Verde of Sub-Saharan Africa, and when we look at East Brazil Timor, we are looking at Singapore and Indonesia.” Timor-Leste Brazil 201m Mozambique 24.1m Angola 18.5m Portugal 10.8m Guinea-Bissau 1.6m Guinea-Bissau Mozambique Timor-Leste 1.1m São Tomé Angola Cape Verde 531,046 and Príncipe São Tomé and Príncipe 186,817 Source: CIA World Factbook

Brunswick Issue seven 19 Review Summer 2013 by graeme trayner, brunswick, london build and mobilize support in the face of the and julie andreeff jensen, brunswick, washington, dc same challenging media dynamics, such as a partisan and confrontational style of coverage, the ever-changing horse race of who is ahead and behind, and constant Starting in the early 1990s, something odd commercially correct: it must also be judged scrutiny and default skepticism towards started happening to governments and to be moral and fair. motives. Politicians have also learned to deal companies: politicians began to talk about Underpinning this shift is a greater with a media that not only reports the news, performance indicators and targets, and awareness of the power of business. In but aggressively lobbies on issues. businesses began using the language of developed economies, businesses have The premise of “permanent campaigning” citizenship and manifestos. The adoption of encroached further into the traditional in politics – where a campaign is no longer a political terminology has accelerated rapidly domains of government, from running utilities few weeks or months every few years, but since then. In 1990, only a handful of and transport to involvement in healthcare and rather a continual effort to maintain support companies produced stand-alone corporate education. As public sector budget constraints and momentum behind a leader’s agenda – social responsibility or sustainability reports continue, the private sector will be expected is a concept that can serve businesses well globally; last year, 3,350 were produced, to do more. In developing markets, companies as they look to secure everyday legitimacy according to Global Reporting Initiative data. can often provide the apparatus and capacity and advance their corporate strategy. The This trend needs to be located within the which the state cannot. Gillian Tett, a newly-formed advocacy group Organizing for wider “politicization” of business, which columnist for the Financial Times, has argued Action, created to help push President has meant that many companies are now that companies are increasingly expected to Barack Obama’s second-term agenda, assessed in the same unforgiving way as have a broader view on issues impacting exemplifies the power behind “permanent political parties. Brands are now very much society, in part due to awareness of their campaigning” and mobilization. seen as public property, with assertive scale, as well as declining confidence in the Previously, corporate communicators consumers feeling a strong sense of power of governmental institutions to bring often borrowed heavily from the campaign sovereignty over what they can and can’t do. about change. tactics of center-left parties in the 1990s. As recent flaps over executive pay and More complex demands on business From Bill Clinton’s campaign in 1992 to corporate tax rates have shown, it is not mean that corporate communicators have those in the late 1990s by Tony Blair in sufficient for something to be simply legal or much to learn from how political leaders the UK and Germany’s Gerhard Schroeder,

20 politicians emphasized the following campaigning communities, such as Avaaz and when confronted by a legacy of perceived Change.org, which allow for the rapid media stereotyping and historical antipathy mobilization of their members behind causes. from voters: This trend in campaigning finds a broader echo in governing, where there has been a greater g Message discipline. use in various countries of referendums, ballot In the era of rolling g Intensive use of opinion research to initiatives, deliberative methods such as understand how to overcome voter “citizens’ juries” and online petitions. news and atomized media, concerns. it is more important to win g Rapid rebuttal of opposition claims and What are the implications for corporate “the big arguments” perceived media distortions. communicators? This more dynamic style of g Setting the media agenda and “winning politics – which also affects business – over time the news cycle.” underlines the importance of an outside-in g Centralization of different functions within approach to communications. That is to say, a single “war room.” as our colleagues Lucy Parker and Jon Miller argued in the previous issue of the Brunswick Though many of these principles remain true, Review, the challenge for companies is to particularly the concept of a war room, we need identify which of society’s “conversations” to to remember that they were first developed join, rather than simply pushing messages more than 20 years ago, when print media down in traditional fashion. Business needs and network evening news still dominated, to help facilitate a “community of interest” rolling news wasn’t yet mainstream and the around issues, and see how best to contribute by campaign chief Jim Messina’s pledge to internet barely existed, let alone Twitter and to debates. “measure everything.” Perhaps a lesser-known Facebook. Times have changed. Over the past Political campaigners have also realized development in sophisticated message- decade in particular, political campaigns the futility of trying to win every “news cycle” – crafting is the application of thinking from have evolved to adapt to the new media indeed, the very notion of a news cycle is a social psychology and behavioral economics. landscape and respond to greater voter quaint concept in an environment of rolling In response to sniping about Obama’s religion, skepticism about spin. news and digital media. In any case, David for example, the campaign took advice from We are seeing a shift towards a looser, Plouffe, a top campaign adviser to President academics that a direct denial would just feed more participatory style of campaigning, and Obama, recently stated that he believes there the myth, whereas a positive affirmation of away from the command-and-control model. are now at least six cycles a day. his Christian faith would be better received. This centers on empowering voters and is This requires a change of focus. Peter Academic thinking about how people process partly a response to the opportunities created Hyman, a former senior adviser to Blair, and act upon communications is becoming by social media, but also the desire for greater argues that in the 21st century media a key part of a more evidence-based approach involvement. Building on the pioneering work environment, it is more important to to decision-making. of 2004 presidential hopeful Howard Dean’s concentrate on winning “the big arguments,” While much of the experience gained from campaign, the 2008 and 2012 Obama that is, the issues where you wish to bring political campaigning can be useful for presidential campaigns used social networks about enduring change. This means focusing businesses, we also need to be conscious extensively to gain feedback and to encourage on an end point rather than each day’s of its limitations. Financial communications conversations between supporters. That headlines. Similarly, Plouffe has emphasized must meet a much higher level of veracity and strategy was replicated in France by François the importance of focusing on the legacy and credibility than politics, and the long-term Hollande in 2012. finding the “pivot points” where you can shift nature of managing a corporate reputation As well as creating an operating the narrative when confronted by the “stray across audiences and markets is quite framework, this strategy is also about tone, voltage” generated by partisan rolling news different from the needs of mobilizing target where politicians can find an effective way to and social media buzz. In business, the voters on election day. However, as businesses open themselves up to criticism. Tony Blair’s challenge – particularly during critical deal with rising expectations and assertive “masochism strategy” in the 2005 election, situations – is to craft those “pivot points” audiences, the political war room provides a for example, was designed to show a when the media torrent can be redirected. robust model for action. politician who was not afraid to listen, even Recent political campaigns have to a painfully embarrassing extent when an also developed a more sophisticated Graeme Trayner is a Partner in Brunswick’s London angry voter exposed her rotten gums to the understanding of voter behavior and how to office, where he focuses on corporate reputation, brand development and issues management. Prime Minister on national television to make tailor communications to speak directly to Julie Andreeff Jensen is a Partner in Brunswick’s a point about the quality of healthcare. individual voters. A lot of post-election analysis Washington, DC office. She specializes in The theme of empowerment can be most of Obama’s win, for example, has focused on corporate reputation, crisis management acutely seen in the emergence of online that campaign’s “big data” approach, guided and executive positioning.

Brunswick Issue seven 21 Review Summer 2013 22 BANKING’S NEW RULES

Having been at the heart of the storm as chief UK regulator during the financial meltdown, Sir Hector Sants tells Brunswick’s Andrew Garfield about his new role at Barclays and the changed expectations for banks

nlike most bankers, Hector Sants has explains his vision for the role and discusses how he been on both sides of the regulatory will build bridges between his former employer and fence. After years working as an his new one. investment banker at UBS and Credit SuisseU First Boston, he became head of the Financial Your job at Barclays – Head of Compliance and Services Authority (FSA), the UK’s banking Government and Regulatory Relations – is a newly regulator, at the height of the financial crisis in created role. How would you define it? summer 2007. Sants has been credited for his role in First of all, it makes sense to bring together helping to avert a banking system collapse, earning the regulatory-relationship component and praise from George Osborne, even as Britain’s public affairs in order to have an integrated input Chancellor of the Exchequer bitingly criticized the into policy determination. Second, it makes sense to FSA itself and moved to replace it from April 2013. combine that with compliance, the function that This year, Sants moved to British bank Barclays ensures we adhere to those policies. – ranked seventh in the world by assets in Global The other point which I would emphasize is Finance magazine’s 2012 survey. Although it that the role of the new group is more than just avoided a bailout, it has had a rough ride since the to ensure people adhere to compliance policies. financial crisis, most recently when it admitted What I would like to see is a re-orientation of attempted manipulation of the LIBOR benchmark. compliance away from the traditional, rather narrow By hiring Sants and putting him at the head of a view of advising how to comply with the policies, to new function within the bank, Barclays is signaling a broader one which makes sure that those values its intention to focus on restoring trust by rebuilding are given substance. its compliance apparatus and strengthening the So, it is about ensuring alignment with the values bank’s relationship with regulators. Here, Sants rather than just alignment with the rule books.

Brunswick Issue seven 23 Review Summer 2013 goals of society, to be aligned with what society A BIGGER SLICE FOR SHAREHOLDERS would expect from a bank, rather than prosecute a strategy that is more aligned with employees’ needs. One key constituency riled by the banking crisis is shareholders. As Barclays shifts its priorities, they are very much on Hector Sants’ We need to recognize that there has been a shift in mind. “Before I joined Barclays, I said I thought one of the key the whole climate in terms of what society expects elements of the new world is that shareholders need to feel they from banks as a result of the financial crisis. have the bigger share of the cake,” he says. A study last year by the Financial Times showed that banks’ It seems the public mood is for something more shareholders had been, in the words of one fund manager, a “residual consideration” by comparison with the resources prescriptive – more rules-based than principles- devoted to bank staff. Looking at 13 big international banks, based, if you like – given recent decisions by the FT found that from 2006 to 2011 staff costs had risen from European lawmakers and Swiss regulators to cap 58 percent to 81 percent of a total pot comprised of net profit executive pay. Would you agree? and staff costs, whereas dividends had dropped to 4.5 percent The view had been that you cannot write rules for from 15 percent. every eventuality, so the best way to get effective Sants says, “I was supportive of the view articulated in [Barclays’] recent set of results of its intentions to rebalance behavior was through articulating the general the share of return between shareholders and employees. principles. That sat alongside the view that markets “You can look at some relatively easy-to-articulate financial were self-correcting and could be self-policing. objectives and say the shareholders should have a better share The catastrophic consequences of the financial of that cake. It is more difficult to say you are rebuilding trust with crisis on the prudential side and, as we’ve seen the community. That clearly is a more difficult long-term challenge.” recently, on the conduct side have caused people to re-evaluate that framework and to push the dial more toward rules. I think that is right for the And it is not for compliance to decide what Barclays’ regulatory system, but for an individual institution values are – they are set by the board, by the executive the goal is to focus on delivering a set of clearly committee, and by the wider management. defined goals that employees can understand. So Compliance’s role is to articulate how those values are what you do in individual institutions is not applicable to individual judgments, and then to make necessarily what you do in the regulatory system. sure decisions are made within those frameworks. One of the consequences of the crisis is that We are not trying to turn compliance into an society, in my view quite rightly, is asking, ‘Where organization that second-guesses business. But are the people being held to account? Where are the compliance should articulate the boundaries within sanctions?’ In order to have regulators who can which the decisions can be made and explain how effectively sanction and hold to account wrongdoers, those boundaries are created and what they mean; you do need a strong rules-based component, and if someone steps outside the framework it is otherwise the legal process becomes bogged down. compliance’s job to make sure the appropriate But the balance of principles-versus-rules in a sanctions are applied. regulator is different for prudential, different for conduct, and different from what you need in a firm. The outside world, no doubt, will see the need for a So I think they must be seen as two different issues. culture change at Barclays and that hiring you is a strong signal. But in concrete terms how do you How has your perspective changed since you moved engineer this shift? to Barclays from your old job? As the chief executive [Antony Jenkins] has already I don’t think my views on what is good oversight and indicated in a number of speeches and interviews, a good risk management system have changed since this will be a major cultural change for Barclays, to coming to Barclays – they have evolved over the past emphasize much more clearly and forcibly the eight years, partly through the learning experience of obligation of the bank to contribute to the wider being involved in the largest financial crisis in

24 modern times. I think I have described that in the So, the starting point is a difficult one, but do public forum before now as a ‘searing’ experience, I think the goal – where we would like to get to – is and that’s entirely right. absolutely an achievable destination? Definitely. I think that goal reflects many elements of where Having been in such a public role, how do you see the the banking system was 30 or 50 years ago. I am not role of communications in your new job? saying it was all perfect, of course, but there clearly Successful communication will be a key component. was a perception – among the vast majority of We need to effectively communicate to employees employees, from management to government and not just what is expected of them but how to deliver politicians – that the banks were primarily there for against what is expected of them. The central the benefit of the community and the economy they challenge is to get employees to live the high-level served. Somewhere along the line that sense of vision and to see the benefits to them as individuals, purpose was lost. I think trying to get back to that to the institution, and to society. Compliance has a place is a perfectly realistic and sensible objective, but central role to play in that, but so does everyone else. it is going to be a lengthy and difficult journey. Change starts at the top, as the phrase goes. It has to start with the chairman, the board, the chief What about the role of risk in the banking crisis? executive, the executive committee. What changes do you expect on that front? There is an external challenge, too. There has been The system was significantly over-leveraged. So there a significant loss of confidence in the global financial has been this ‘50-year intellectual mistake’ [to borrow system and global financial institutions. Barclays a phrase from Lord Turner, the FSA’s last chairman], certainly has been one of those institutions where in relation to capital and liquidity restraints, which is confidence has been significantly eroded. Rebuilding being corrected through the new regulatory rules. But confidence – with customers, clients, regulators, the reducing the leverage that the banks have available political system, the media – is necessary for Barclays will make it more challenging to obtain the returns to prosper and to make the contribution it would that shareholders are looking for. When leverage was like to make to society. I am not the only person the main source of growth it was relatively easy to involved, but clearly I am looking forward to and focus on revenues rather than costs. But the next expecting to play a meaningful role in that external period for banking will have a far greater focus on communication agenda.

You make it sound fairly straightforward, but surely HECTOR SANTS after the experience of the last few years you have a difficult task ahead of you? Hector Sants joined Barclays in January 2013 We are starting from a very poor position where as Head of Compliance and Government and Regulatory Relations. confidence has clearly been lost in financial Prior to that he was the Chief Executive of institutions as a whole, and Barclays is no exception. the Financial Services Authority from July 2007 We are starting from a position where a number of until July 2012. He was also Deputy Governor fundamental misjudgments have been made by the Designate of the Bank of England and CEO regulators about the rules they applied to the banking Designate of the Prudential Regulation Authority between June 2010 and July 2012. system. The consequence of that is that there has During this period he served as a member been a major financial crash which has reduced the of the interim Financial Policy Committee of well-being of many citizens around the world and the Bank of England. He joined the FSA in May they feel, understandably, that the banks should be 2004 as a Managing Director, prior to which he was Chief Executive Officer of Europe, Middle held to account for what has happened. Nearly East and Africa at Credit Suisse First Boston. everyone in the community feels aggrieved and Sants is Chair of the Said Business School uncomfortable about events. at Oxford University, and was knighted in 2012.

Brunswick Issue seven 25 Review Summer 2013 costs and I have no doubt that there is a lot of scope “E thical commandments writ very large indeed,” is how Harriet to take costs out of the banking system. Barclays’ cost Dennys, The Daily Telegraph’s City Diary Editor, described the reduction agenda will be one of the key challenges, signs in the lobby of Barclays’ HQ in London’s Canary Wharf to recalibrate to a world where revenue growth is very modest and to get back to an acceptable level of return for shareholders, which is primarily achieved by Will the new approach work? taking costs out of the system, both through greater Well, I think there is no question that the tougher efficiencies – operational efficiencies, technology – and more demanding capital and liquidity and by employees taking a smaller share of the cake. framework will reduce the likelihood of failures of the magnitude we have seen. Will they eliminate You’ve said you expect closer regulation of banking them? Absolutely not. History tells us that when in the future. Will that help to restore confidence? financial crises do come around again, the regulator’s I always say this very carefully: you need to distinguish role is to reduce the impact on society. Individual between prudential regulation and conduct banks definitely will fail and, in fact, probably will regulation, they are two very different issues. One fail with a greater frequency as a result of resolution really interesting element of the financial crisis is that mechanisms being put in place. it started off being seen as a prudential crisis, but On the conduct side, I think that is much more events exposed behavioral and conduct issues debatable. The tougher deterrent framework in the subsequently which became the defining issues that UK, in Europe and potentially the US, together with people reacted to. But the conduct and prudential the new consumer framework, will have the effect issues are different. I think moving to the ‘twin peaks’ of deterring some but not all bad behavior. It is approach in the UK is the right approach; they not going to eliminate the possibility of consumers are different types of risk. [From April 2013, the FSA getting the wrong product and, to some degree, you will always have an obligation for the consumer ceased to exist and two new organizations were to make a judgment – they may not always turn out created: the Prudential Regulation Authority, which is be the best judgments. part of the Bank of England, and the Financial

Conduct Authority, in charge of monitoring, Andrew Garfield is a Partner in Brunswick’s London office and investigating, and prosecuting financial miscreants]. focuses on financial institutions and cross-border work.

26 CITY OF INDUSTRY Singapore is a development success story. Choo Chiau Beng, CEO of Keppel, a key company in that story, says critics of the Singapore model have got it wrong interview by christina pantin, brunswick, hong kong

The “Singapore Miracle” has fascinated economists for decades. How is it that Singapore, a small, tropical city-state with few natural resources, has seemed able to get the balance between government involvement and private enterprise right when so many developing countries have struggled in this area? At the heart of Singapore’s unique model are government-linked companies, or GLCs. These include the national carrier, Singapore Airlines, whose branding is so closely identified with the country’s image of polite efficiency. Loosely defined as companies that are at least 20 percent owned by Temasek Holdings, the government’s main investment vehicle, GLCs occupy leading roles in banking, telecoms, property, media, shipping, and utilities. However, Singapore’s “state capitalism” approach has long had its opponents. The criticism of GLCs has two sides to it: that they are both too cosseted and too powerful. To critics – growing in recent years as Singaporeans have become more exposed to globalization – GLCs crowd out competition among small- and medium-sized businesses, are risk-averse, benefit from an explicit or implicit tie with the state, and use the caché of being “Singapore Inc.” to expand overseas more easily than peers without powerful connections. At Keppel Corporation – oil rig builder, property developer, power producer, and one of the original GLCs in the 1960s – CEO Choo Chiau Beng firmly denies such special treatment. “We don’t have any iron rice bowl,” he says, using the Chinese idiom that conjures up an image of secure jobs for life. GLC employees are not civil servants, he says, “We can fire people.” Singapore’s brand of paternalistic capitalism, directed since full independence in 1965 by Lee Kuan Yew and his successors, has always had its detractors, though its economic and social success has

Keppel Corporation is one of Singapore’s original government-linked companies (GLCs), with offshore and marine, infrastructure, property, and investment interests

Brunswick Issue seven 27 Review Summer 2013 served to deflect the criticism. However, economic growth has slowed government statutory board and a GLC. He says, “GLCs today are not in recent years and Singapore has lost some of its competitiveness, only involved in strategically important industries. As a result, they leading critics to argue that the hand of government is too heavy in the make it difficult for private entrepreneurship to flourish.” business world. Singapore’s unique state capitalism, borne out of Indeed, the state link is far from always being a blessing for GLCs. necessity in a newly independent country with an uncertain political SingTel, for example, faced opposition when it bid for Australia’s future, has outlived its usefulness, they say. Optus in 2001 over concerns about its GLC status. DBS Bank, The case for the defense of GLCs is based on the argument that another of the government’s strategic holdings, was thwarted in they have evolved over the years to suit the prevailing conditions in its attempt to buy a stake in Korea Exchange Bank in 2006, also Singapore as the country developed. because of the GLC tag. At Keppel, the share ownership of Temasek is down from the While the government may be a hindrance in terms of overseas original 100 percent to 21 percent, which is lower than Temasek’s expansion, it isn’t much help for companies that run into trouble stakes in other GLCs, such as Singapore Airlines, Singapore Telecom, either. Choo points out that far from being too big or too well- and shipper Neptune Orient Lines. connected to fail, Singapore’s history of GLCs is dotted with Choo says the GLC-government relationship is to be distinguished companies that have gone under. “The key point is the government from other models of ownership in the region, for example the state- doesn’t believe in subsidizing any business and if you fail they let you owned enterprises (SOEs) in China. “SOEs are the instruments of the go bust,” he says. government,” Choo says. “Singapore has no such tradition.” Critics aside, Singapore is unlikely to relinquish significant There are strategic benefits to having the government as a long- ownership of strategically important sectors, such as defense, term shareholder, but Choo says this neither gives market utilities, aviation, and media, even though it has been scaling down advantages nor puts constraints on companies like Keppel. its shareholding – and in a few cases, completely exiting – a number “It’s good to have an anchor shareholder with long-term views. of GLCs over the decades. But they [the government] never ask us to set prices. We have The US State Department noted in its 2012 investment climate to invest in our own R&D. We get the same treatment as MNCs report on Singapore that the top six listed GLCs accounted for about [multinational corporations]. In fact, I would say that MNCs pay less 17 percent of the Singapore Stock Exchange’s total capitalization. rent than we pay, and they pay less tax than we pay, because we have no tax holidays.” Furthermore, GLCs are as accountable to stakeholders as private companies because “they operate fully as for-profit commercial firms and are expected to provide returns that are commensurate with risks taken,” he says. A paper by the International Monetary Fund a few years ago – Singapore, Inc. Versus the Private Sector: Are Government-Linked Companies Different? – supports Choo’s contention. There is “no basis for the lingering public suspicion that GLCs have easier access to credit,” the report’s authors concluded. “This suggests that GLCs are competing on a level playing field as far as access to financing is concerned. However, we do find that being a GLC is rewarded in the CHOO CHIAU BENG financial markets with a premium of about 20 percent,” the paper went on. “This GLC premium has to reflect the market’s perception Choo Chiau Beng has been CEO of Keppel Corporation, one of of the benefits – whether real or illusory – of being linked to the Singapore’s original government-linked companies and a major government.” The IMF cautioned against creating more GLCs or marine infrastructure builder, since the beginning of 2009. He first joined the company as a trainee in 1971, with Bachelor’s and Master’s expanding existing ones as that would dilute the benefits. degrees in naval architecture from the University of Newcastle in the UK. Nonetheless, the critical voices continue to be raised. Singapore business professor Mak Yuen Teen, who specializes KEPPEL CORPORATION in corporate governance at the National University of Singapore, has raised questions about the need for the GLC model through Keppel, named for British Captain Henry Keppel who in 1848 discovered letters and comments in local newspapers, as well as in his the sheltered deep-water harbor that would later make Singapore such research papers. a strategic trading port, started its modern life 45 years ago, with a small shipyard. “I am among what I believe is a growing number of Singaporeans Last year, Keppel posted revenue of S$14bn (US$11.3bn), it has who are skeptical of the relevance of the GLC model today,” he says. operations in 30 countries, more than 40,000 employees, and a market “When they were first formed, the whole idea was to industrialize and capitalization of around US$16bn. create local champions in certain industries.” Keppel operates as an investment holding and management But Mak questions if the GLC concept has gone too far, pointing company, which provides offshore and marine engineering and to the fact that many of Singapore’s public housing estates are being construction services. It has four business segments: offshore served by an estate management services company owned by a and marine, infrastructure, property, and investments.

28 “Keppel enjoys a symbiotic relationship with the Singapore government,” says CEO Choo Chiau Beng. “When venturing overseas, we benefit from the Singapore brand name, as well as helping to strengthen it”

For those companies, the requirement for transparency is more or less the same as for others in the private sector. “GLCs are private sector enterprises and many are publicly-listed with their own set of shareholders, apart from Temasek,” Choo explains. In other words, they have to abide by the same rules as other private sector-listed companies. This is something his company has dealt with for decades. “Keppel has been listed on the Singapore Exchange since 1980 and we ensure that we comply with all its rules and regulations,” Choo says. “We are governed by a board with a majority of independent directors who are professionals, appointed on merit. In fact, I believe, contrary to perception, being a GLC puts us under more scrutiny as our shareholders would expect stricter adherence to best practice.” As investments, GLCs have generally been rewarding. Many, including Keppel, have captured commanding market shares – Keppel has 70 percent of the world jack-up oil rig design-and-build market. THE ABC OF GLCs Singapore’s GLCs are run by professional managers from the Government-linked companies (GLCs) are commercial entities public sphere and are held accountable for financial targets. This runs in which the government is the largest shareholder and often has counter to perceptions that had been driving some criticism. As the a controlling vote. IMF report put it, one of the broad criticisms of GLCs was that they Singapore’s GLCs came about as part of the government’s do worse than private sector companies because “their managers post-independence plan for industrialization. After its precarious are mainly civil servants who lack business acumen.” But the IMF independence in 1965, the government of the resource-poor city-state found the opposite: “GLCs bear quite a close resemblance to private sought to invest in critical industries in its early days of nation-building. enterprises. The government clearly subscribes to what has been GLCs in Singapore bear a very close resemblance to private termed the ‘managerial’ view in the ongoing debate on public versus enterprises, differentiating them from state-run enterprises in private ownership, which argues that competition rather than China and other Asian countries. ownership per se is the key to efficiency.” Lee Kuan Yew, the country’s iconic modern founder and first Prime Choo himself is an example of the professional management Minister, said GLCs originated out of necessity, not through any state class that prevails at GLCs. Having trained in naval architecture at the desire to control business. “We did not have enough entrepreneurs, and University of Newcastle in the UK, he joined Keppel as a ship repair those we had lacked the capital or interest,” he said. “So government management trainee in 1971, when Keppel Corporation was just five ministers undertook the task of starting new ventures.” years old. Choo recalls those entrepreneurial early days, selling Temasek, which means “sea town” in old Javanese and was the name barges in the Philippines and taking payment for them in pesos of an early settlement on the site of modern Singapore, was formed in 1974 to hold and manage assets and investments made by the Singapore bundled in brown paper bags. government. GLCs were defined as companies in which the government Choo points out that Keppel has been promoting Singapore as held at least a 20 percent stake. Temasek is a commercial entity, not a much as the city-state has been a booster for the company down the government agency, and it is tasked with managing the investments years. “Keppel enjoys a symbiotic relationship with the Singapore in GLCs as well as other holdings. government,” he says. “When venturing overseas, we benefit from the Temasek’s starting portfolio of S$354m (US$280m) included a bird Singapore brand name, as well as helping to strengthen it.” park, a hotel, a shoemaker, a detergent producer, naval yards converted The government-business relationship is symbolized by the fact into a ship repair business, a start-up airline, and an iron and steel mill. that Choo had been appointed “non-resident ambassador” to Brazil, While Temasek has divested some of its holdings in GLCs in the where Keppel does significant business with the national oil company, ensuing decades, the influence of these entities is still very strong. Petrobras. Choo says it is a logical combination: “What is the purpose Singapore’s unique form of state capitalism has produced notable of an embassy? Economic relations.” business success stories, such as Singapore Airlines, DBS Bank, and Keppel Corporation, which have been run on a commercial and Christina Pantin is a Director in Brunswick’s Hong Kong office. She specializes competitive basis despite the government ties, and have succeeded in financial media, crisis communications, executive communications coaching not just domestically but regionally and globally.

Photographs: Keppel Corporation Keppel Photographs: and Southeast Asia businesses.

Brunswick Issue seven 29 Review Summer 2013 REFLECTIONS ON THE REVOLUTION Can social media improve government-business dialogue in the Middle East?

by wajih halawa and zein bushnaq, brunswick, uae

In the spring of 2011, a few months after the onset of unrest that traffic, according to Paris-based researcher Semiocast. The Arab Social sparked the regional political revolutions now dubbed the Arab Spring, Media Report, published by the Dubai School of Government, found technology commentator Don Tapscott posed a question about the that between one-third and half of Middle East users of social networks region that had been on many people’s minds: “Can social media help believed their participation helped to change community behavior, while to build new governments?” around half believed that they had become more tolerant of other To take the question one step further: given social media’s role in people’s views as a result of engaging via social media. tearing down the old regimes, could those same platforms now play The revolutionary mood naturally has governments in the region on an equally important part in building new systems for governing? edge. But behind the ubiquitous grainy YouTube footage of protests, Could Arab governments use social media to organize, for example, there is a less dramatic but equally revolutionizing story: social media’s virtual town halls that would allow their citizens and businesses role in how governments and public figures are communicating with to question policymakers and create outlets to report on vital their constituencies. community issues? In March 2013, for example, the federal government of the United The growing importance of social media in the region is supported Arab Emirates (UAE) announced its first reshuffle in five years. In a by a slew of evidence, including a 2012 Pew Research Center report regional first, Sheikh Mohammed bin Rashid Al Maktoum, UAE Prime which found, among other things, that the populaces in Lebanon, Minister and Ruler of Dubai, broke the news via Twitter (@HHShkMohd). Tunisia, Egypt, and Jordan used social media to discuss politics nearly As an active Twitter and Facebook user (he’s second only to Queen twice as frequently as their equivalents in the West, and to converse Rania of Jordan among Arab public figures, and she has the 4th most about religion and community issues nearly six times more than in “followed” Twitter account among world leaders), Sheikh Mohammed’s western Europe. news underlined the importance of social networks to a growing cadre Arabic is the fastest-growing language on Twitter, although it still of Arab leaders. Sheikh Abdullah bin Zayed Al Nahyan, Foreign Minister accounts for just a little over 1 percent of total worldwide message of the UAE, recently conducted a Twitter interview with prominent

30 Dubai-based TV personality Mahira Abdelaziz; former Lebanon Prime At the same time, social networkers have sprung up to point out Minister Najib Mikati regularly conducts Twitter chats with his followers, where government departments are slow or inefficient (or even corrupt), and Lebanon President Michel Sleiman stands out as one of the very and there are government ministers, in countries such as Jordan and few regional heads of state who tweets personally. Saudi Arabia, who are engaging directly with bloggers in order to better After the Egyptian revolution, the Supreme Council of the Armed understand the concerns of business. Forces (SCAF) in Egypt was quick to set up a Facebook page where it Jordanian entrepreneur Samih Toukan, founder and CEO of Jabbar posted its announcements, and the Egyptian prime minister’s Facebook Internet Group and one of the founders of Maktoob.com (which became page has now survived two governments: one under the SCAF and an Arab world online success story when it was sold to Yahoo! in 2010), another under the rule of the Muslim Brotherhood. frames the imperative for governments to communicate in terms of It is becoming abundantly clear that there is an opportunity to build solving the serious economic challenges the region faces. some form of participative government, even in countries that have “The Arab world needs to create more than 22,000 jobs per day to historically shunned this approach. But it is early days. battle unemployment, especially among its youth, which represents the “Leaders and officials taking to social media and engaging majority of its population,” Toukan explains. “It is no longer feasible for directly with people should be an incentive to other government governments in the region to try to solve the problem by employing people institutions,” says veteran journalist Randa Habib, Director, Middle East in oversized ministries, agencies, and police or defense forces. The and North Africa at Agence France Presse (AFP). “However, in most of traditional private sector will also not be able to absorb such huge numbers the Arab countries, institutions are not empowered enough to take [of workers]. We need to look at non-traditional solutions and this is what bold steps, which is why we mainly see those using social media entrepreneurship and small- and medium-sized enterprises can offer.” expressing the official government line and taking no risks. While we Toukan sees this happening by fostering an environment that are witnessing a slight improvement in the discourse, the road ahead facilitates business formation. Governments that recognize the risks of is very long.” attempting to suppress freedom of expression online will find that their

But this is not just about governments or leaders tweeting or posting energies are better spent on making their services more efficient and on Facebook. There appears to be a formal push by some governments giving citizens (and expatriate residents) avenues to voice their concerns to engage more actively with citizens online, and not simply use and suggest solutions to problems. Entrepreneurs and multinational social media to monitor activists and dissidents. Bahrain, for example, corporations alike would then find it attractive to set up businesses, train uses social media such as Facebook to raise awareness about its more employees, and allow young people to innovate and excel. smartphone-based applications through which citizens can access For those businesses looking for opportunities in this changing online services. A health service app provided free by eGovernment political landscape, the key is to have the right monitoring systems to Authority Bahrain now offers an interactive map for hospitals, health track the impact on their markets, and respond effectively to evolving centers, and pharmacies. government positions. This points out the real difficulty for both governments and business Critically, businesses will feel more secure and able to plan long-term at this historical juncture for the region: the pace of change has to be when they believe that governments are listening to the population’s very finely judged. For countries that have long been governed by a concerns and taking appropriate action. This will encourage people to delicate mix of tribal consensus and institutional bodies, it could be focus less on protesting and more on building their economies. easy for incumbent governments to get it wrong. Companies will also be able to use these new channels to engage with Businesses, meantime, want to survive the Arab Spring while governments on the topics that matter most to them – and make their shying away from politics. But they would do well to pay attention as own contributions to building stronger economies. more governments see value in genuine digital engagement. This is particularly true, for example, with policies to attract foreign investment, Wajih Halawa is a Director in Brunswick’s Abu Dhabi office. He is a corporate where small businesses and locally-owned corporations have a great reputation specialist and former features editor of Jordan Business Monthly. deal of influence and have been spurring governments to move more Zein Bushnaq is an Account Director in Brunswick’s Dubai office and advises quickly and enact reforms. technology and telecoms clients.

Brunswick Issue seven 31 Review Summer 2013 SOFT POWER TRANSATLANTIC DIALOGUE The relationship between two of the world’s most important trading powers is a complicated one and requires an equally sophisticated diplomatic approach, William Kennard, US Ambassador to the EU, tells Brunswick’s Philippe Blanchard

32 little over a year into his tenure as US President Barack Obama’s Ambassador to the European Union, William Kennard gave a talk at TEDx Brussels in which he addressed the idea of, as he put Ait, “how to recapture some of the magic of the tech revolution,” in terms of making it work for the US and European economies. He recounted that he’d recently been reminiscing about his time “i find that so many times as head of the Federal Communications Commission (FCC), the in my jobs, whether i am US telecoms regulator, in the late 1990s, the internet’s formative in government or business, years: “It occurred to me that for innovation to happen in an i feel like the salesman” economy it is not just about ideas but it is also about creating a government environment for ideas to flourish.” This means that government should make certain R&D investments – as the US did in the Defense Advanced Research Projects Agency (DARPA), which helped to give birth to the internet. “But that wasn’t all that happened. There was a wonderful cauldron of people and ideas and government policies that came together in the Silicon Valley in the 1990s.” This fostered a culture Having worked in both business and public service – a of risk-taking by venture capitalists, favorable regimes for taxation combination that is still more common in the US than in Europe and immigration, and an attitude of “regulatory restraint,” which – what is the difference between the two in terms of the allowed the internet to develop in an unregulated environment. communications constraints? “Innovation doesn’t come top-down, it comes bottom-up,” I feel very fortunate that I have been able to work in both the Kennard told the audience, emphasizing that “fully 50 percent” of private and public sectors. I’ve spent most of my career in the those who started enterprises in the Silicon Valley of the 1990s private sector, but have had the privilege of serving at high levels were immigrants. in the Clinton and Obama administrations. Over the course of It was a manifesto for openness. It was also a pro-business my career, I’ve learned that many of the same leadership skills message, and one that perhaps summed up the US experience apply in both contexts. in fostering important growth industries. Furthermore, it It really comes down to being able to do three things. First, highlighted potential points of difference with the EU over areas you have to be able to articulate a vision of what you want to that are key to trade, such as the balance between protection of accomplish and where you want to take the organization. privacy and fostering innovative new digital businesses. Second, you have to be able to execute – to chart a course to implement that vision. And third, you have to inspire people Has living in Brussels these past few years changed your personal to share your passion for the vision. You can’t do it alone. You perspective on Europe? need ‘buy-in,’ you need to win people over. I find that so many Yes it has. I lived in France briefly as a student, but I never lived times in my jobs, whether in government or business, I feel like in Europe as an adult. President Obama asked me to take this the salesman. I am always trying to persuade people to do what job because I have both a business and a regulatory background. I think we need to do. I guess that is a key component of getting Brussels is a very intensive regulatory environment. So I arrived things done. You have to get people behind you. with an understanding of how to deal with complex regulatory issues and bureaucracies. Do you find that our vision is becoming increasingly short- But I quickly learned that Brussels is more complex than termist due to the length of mandates in both politics and Washington. This is primarily because the EU is a power- business? And can we change this? sharing arrangement among 27 sovereign nations, governed by Good leaders are able to articulate a long-term vision and then treaty and ruled by consensus. This makes decision making persuade people how the short-term goals are essential to realizing more cumbersome and complicated in many ways. that vision. Sometimes, of course, setting long-term goals

Brunswick Issue seven 33 Review Summer 2013 requires us to acknowledge that in the final analysis, we can’t has real oversight power – especially the power to subpoena predict the future. As a regulator, I learned that government needs testimony and oversee your budget. This provides businesses in to have the humility to acknowledge that it can’t predict where Washington with a very powerful outlet to influence outcomes. the market is going. In Brussels, the role of the European Parliament has been The pace of business always will – and always should – move strengthened after the Treaty of Lisbon, but it has far less faster than the pace of government decision making. For example, oversight authority. the product cycles of today’s wireless devices – smartphones and tablets – are 18 months. The product cycles for applications on Do you think that the complexities of the EU are understood in those devices are even shorter. Entrepreneurs are coming up with DC’s political community – and in the US generally? new business models all the time. Government decision makers No. I don’t think there is a deep understanding of the EU, in part should resist the temptation to make decisions based on their because the EU is ever-evolving. I think there is a general predictions of where the market is going, because markets are fast- perception that the EU is very important and is increasing in moving and inherently unpredictable. importance. This is reflected in the headlines. In every major newspaper in What’s the best way for the business the US, people have seen headlines about sector to deal with its public image, to the eurozone crisis for almost four years react or to be more proactive? now. Many Americans now understand ‘Business’ isn’t monolithic – some do it that the values of their stock portfolios are better than others. I do think the being impacted by EU institutions. This is businesses that relate best to government a recent phenomenon. Now our challenge are those that spend a lot of time with is to harness that awareness in more government officials explaining how positive ways. If we launch negotiations on their businesses work and their vision for a US-EU trade agreement, which I hope the future. Both in the US and in Europe, will happen this summer, we have an I’ve seen regulators kill proposed deals because government and opportunity to show Americans that growth in the European business had a fundamentally different view of where the market economy can be hugely beneficial to the US economy – that there is going. Executives should spend time with government officials is a real upside to this relationship for all Americans. articulating their view of the market and how it is evolving. This is particularly important for technology businesses. There is something of an EU inferiority complex and people Business leaders should not assume that government officials seem to be more excited about China and other Asian economies. share their view of the future. Do you recognize that? I have noticed that too and I have told people here that they need Do you see a major difference between the US and Europe on this? to just get over it. The EU represents more than 500m people. The Washington lobbying culture is very different from that in Collectively, it is the largest economy on the planet. If people Brussels. Companies in Washington are much more aggressive here would focus on that potential I think it would improve the about advocating for their point of view – they use tools of sense of inferiority that you mentioned, and maybe it would persuasion more aggressively. So, for example, if there is a major create more motivation to maximize the potential of the EU merger pending before government agencies in Washington, as an economic bloc, to deepen the single market, to speak companies advocating that merger will buy advertising on radio more often with one voice. You do not hear people in the EU say and television and in newspapers. They will mount major very often, ‘We are the world’s largest economy.’ I think that advocacy campaigns in Congress and with the public. is because the EU has not yet realized that potential. One of the key differences I have noticed is the role of The common identity at the European level is still nascent legislative oversight. In Washington, Congress has a much and, of course, Europe is currently suffering a bout of stronger oversight role, particularly over the regulatory agencies. euroskepticism. But ultimately, that’s a mindset, right? Again, it Having been a regulator in Washington, I know life is very comes down to articulating a vision and getting people to different there because you are accountable to Congress which embrace that vision – to see the enormous untapped potential of

34 WILLIAM KENNARD

A graduate of Stanford University and Yale Law School, worldwide and signed agreements to share US William Kennard served as Chairman of the US Federal regulatory experience with emerging regulatory Communications Commission (FCC) from 1997 to authorities in other countries. 2001. His tenure saw the explosion of mobile phone He left the FCC in 2001 to join private equity technology and billions of dollars of investment in firm The Carlyle Group, where he led deals in the new broadband technologies. Kennard promoted telecommunications and media sectors. Kennard the benefits of competition and deregulation was appointed US Ambassador to the EU in 2009.

an integrated, decisive European Union. Now, this whole notion elsewhere has been generally consistent. World leaders, that our pivot to Asia means that the US doesn’t care about particularly those in the US and Europe, agreed on a broad Europe is simply false. We’re pivoting to Asia because Asia is course of action: shoring up capital requirements for banks, emerging as the most important region in the world. But we tightening regulation of derivatives markets, and increasing are not shifting away from Europe to do that – we want to shift oversight authority of the financial services industry. So in with Europe towards Asia. A centerpiece of our foreign policy broad terms we agreed. Differences at the margin can have is to convince the EU and European governments to think important distorting impacts, but we are working hard to more about Asia in geopolitical terms. And I truly believe that resolve them. Europe could better realize its own potential if it had a greater There is a very robust dialogue that has been going on for appreciation of Asia’s potential. some time now between our financial regulatory authorities and their counterparts in the EU, and those discussions will continue How have you been involved with decision makers here on the alongside the TTIP negotiations. The TTIP will deal more eurozone crisis? The US Treasury leads on that, right? directly with market access issues that arise in the financial It is a delicate role for the US government because the eurozone services context, which is a standard component of free trade problems that have played out here over the last four years agreements. But the current thinking is that there is already a profoundly affect the global economy, but the US government robust channel for dealing with the regulatory convergence cannot decide the outcome of those issues. It affects us but we issues in this area. Remember, we have a vast and complex don’t have a vote. We usually have a point of view about which relationship with the EU and you don’t want to fold every issue course the EU and the member states should take, but because into the TTIP, otherwise it becomes a Christmas tree with too we are not the decisive voice, sometimes our advice can be many ornaments. perceived as interference. That being said, I think that we have played a useful and important role in providing advice based on Is there support at home, in the US, for an expanded trading our recent experience in recovering from the financial crisis. partnership with the EU? These issues are highly technical and quite market sensitive, Virtually all of the key stakeholders in the US have been so most of our communication is done very discreetly by the supportive, including bipartisan support in the US Congress Department of the Treasury. and support from organized labor. Everyone has their own ideas of what they would like to see, but no major constituency group The eurozone crisis has triggered a whole wave of regulation in the US is saying, ‘Don’t do this.’ That is important. So we on the financial sector. This regulation was meant to be have a significant window of opportunity. If we seize it, we coordinated by developed economies, the G20, but with mixed can accomplish something truly historic not only for the US and results. Will the Transatlantic Trade and Investment the EU but for the entire global trading system. Partnership [TTIP] and a free trade agreement [FTA] improve Philippe Blanchard is Senior Partner in Brunswick’s Brussels office. the process? He provides strategic counsel in developing and implementing pan-European I’m very optimistic on these questions. First, the global response public affairs and corporate communications programs. to the crisis by the world’s major economies at the G20 and For more on the forthcoming TTIP negotiations, see following pages

Brunswick Issue seven 35 Review Summer 2013 overall wages and new job opportunities for high- and low-skilled workers”. A MORE The CEPR estimates that a comprehensive trade deal would bring economic gains of €119bn ($153bn) a year for the EU, and $122bn a year SPECIAL for the US. This translates to an extra €545 in disposable income each year for a family of four in the EU, on average, and $840 per family in the US. The rest of the world would also benefit from liberalizing trade RELATIONSHIP between the EU and the US – the CEPR estimates that it would increase global income outside the US-EU by almost $128bn. A new US-EU trade agreement will have The political impetus is there – President Obama clearly wants a deal profound implications for companies before he leaves office after 2016, and the current European Commission wants to have laid the foundations for such a deal before it is replaced across the globe, say Brunswick’s at the end of 2014. But the benefits of a comprehensive deal would not be evenly spread – there would be winners and losers, both within and Neil McMillan and David Sutphen across industries. The politics of the FTA negotiations, therefore, will revolve around vested interests on both sides, some of which have become accustomed to the protection afforded by the remaining barriers, 80 percent of which are not tariffs but a result of domestic regulations. “A good idea that business should rush to support,” is how The Economist In this environment, both the Office of the US Trade Representative described President Barack Obama’s plan for a new Transatlantic Trade (USTR) in Washington and the Directorate-General for Trade (DG Trade) and Investment Partnership (TTIP), which he set out in his State of the in Brussels – at the front line of the talks – will be looking for input from Union address in February. business about remaining barriers they consider a priority. This is an Beginning in the summer of 2013, the TTIP talks have the goal of opportunity for companies to shape the outcome of the talks. putting a free trade agreement (FTA) in place within two years. A deal What should companies be doing? First, they should make sure they would create the largest internal market in the world, with 830m know what is happening in the negotiations. They should engage with the consumers, and would liberalize one-third of global trade. The size of this relevant parties – including the European Commission, USTR, single market would give it a huge advantage, allowing it to call the tune US Department of Commerce, EU member state officials, and regulators of on standards for the rest of the world. It has wide support. Karan Bhatia, various industries – to keep up the momentum of the talks. They should a former Deputy US Trade Representative, said the FTA would not cost also develop messages aimed at political decision makers and the media. taxpayers money and would be a “great, untapped stimulus.” Below are some industry-specific considerations to bear in mind: Peter Westmacott, Britain’s Ambassador to the US, described it as the “Holy Grail” for resuscitating transatlantic economies. The proposed US-EU FTA is not new. In 1995, the EU and the US launched the Transatlantic Business Dialogue, which aimed to speed up automotive application of trade rules. Three years later, the Transatlantic Economic Partnership was initiated to knock down technical and regulatory trade Would an FTA bring us closer to a “world car,” one designed to global barriers. Then in 2007, the Transatlantic Economic Council was set up as standards? A successful outcome in automotive safety standards could an overseer of bilateral business relations. All were ambitious but none save companies billions of dollars in compliance costs and accelerate the has, so far, yielded much. But the lingering effects of the financial crisis achievement of a real world car. According to the CEPR, the automotive and its drag on economic growth – and the challenge of emerging sector is likely to be the industry most affected by a comprehensive new economies – have created a new incentive to talk. US-EU trade deal. The Transatlantic Economic Council so far only However, The Economist warned in April that the talks so far were managed to agree on a standard plug for electric vehicles – useful but “beset by small-mindedness and mutual suspicion,” which included hardly dramatic. But fully harmonizing safety standards offers major protections for French cinéastes, Flemish hip-hop artists and Delaware competitive advantages for EU and US manufacturers, and will therefore chicken farmers. But there is much to gain. The Economist also estimates continue to be a focus of a new FTA. US and EU automakers have already that ditching even half of the current non-tariff barriers under an FTA could expressed strong support for the TTIP, provided it does not increase the boost GDP on both sides of the Atlantic by 3 percent. overall regulatory burden or costs. Nonetheless, some manufacturers But getting that done in two years? A tall order. might rely on safety regulations to maintain protective barriers. In Europe, trade discussions with Korea and Japan, for example, were dogged CARDS ON THE TABLE by concerns that free access to the EU from these countries would A new FTA would be without doubt a boon for the global economy. In a hit EU manufacturing hard. March 2013 report commissioned by the EU, the Center for Economic Policy Research (CEPR), a London-based think tank, found that, “The increased level of economic activity and productivity gains created by the agreement will benefit the EU and US labor markets, both in terms of

36 chemicals agriculture

There are a number of remaining tariffs, some of which create significant Agriculture, which has seen several previous trade disputes, will be one of barriers, for example in biofuels. Both the US and EU are subject to extensive the most contentious areas under negotiation. The US will push for market and often divergent rules relating to safety and approval: in the EU, the access for genetically modified organisms (GMOs) and other foodstuffs REACH (Registration, Evaluation, Authorization and Restriction of Chemical which the EU restricts. But even if public attitudes to GMOs change, the substances) directive has involved considerable burdens on industry. US EU may find it politically difficult to make substantial concessions. US chemicals companies may seek some relaxation of these in an FTA. producers are also concerned about the EU’s use of quotas and food Meanwhile, the EU has said it will push for mutual recognition of the control health and safety requirements, including diverging lists between the two of chemicals, and will look for common principles for information sharing. markets of permitted animal and crop treatments. The negotiators will also be discussing the use of pesticides and the setting of maximum residue tolerances (MRLs) in agricultural products. There are a number of other disputed areas, including protected regional production for products, such financial services as Champagne or Parma ham, and dairy standards.

Financial services firms already enjoy relatively unrestricted market YOU SNOOZE, YOU LOSE access in the EU and US, but entirely on terms laid down by regulators For companies affected, the stakes involved in the FTA talks – both positive in each market. Legislation since the financial crisis – such as Dodd-Frank and negative – will be considerable. Any common industry standards set or the mass of EU regulation already adopted or in the pipeline – has for what would be the world’s largest single market would de facto become made this situation more complicated, pushing the prospect of mutual the standard to which products and services from any other country would recognition or harmonization of (in some cases contradictory) rules back have to conform. further. This is exacerbated by recent scandals, such as LIBOR It is therefore imperative that companies keep abreast of developments manipulation and money laundering, which will make EU and US regulators and do what they can to ensure the right outcomes. Many larger companies nervous about relying on each others’ rules to police financial institutions will undoubtedly be following the negotiations through direct interaction operating in their respective jurisdictions. with USTR and DG Trade. They and others may also be represented by trade organizations, though these have their limitations, having to reflect often conflicting views. Many companies will want to ensure their specific priorities are represented and can best do so by direct contact with pharmaceuticals policymakers. Smaller companies may have fewer lobbying and influencing resources at their disposal, which makes it all the more important that they Pharma is subject to a number of trade barriers, including tariffs and consider effective ways to get their messages across to the right people. differences in intellectual property rights protection (for example, different Companies from outside the EU and the US – especially from China, timeframes for market exclusivity – one year in the EU; three in the US). Brazil, and Japan – will have little direct influence on negotiators, even Among the issues of most concern to pharmaceutical producers will be though they will be affected by an agreement. Both Japan’s and Brazil’s a desire to achieve mutual recognition agreements covering fields such governments have already woken up to this point, and are seeking bilateral as good manufacturing practices (GMP). negotiations to allow them to have access to a transatlantic single market. China is watching the process very closely. What are the TTIP’s prospects for success? Few believe that a comprehensive deal will be in place in two years, but both sides have information & already agreed to seek an early agreement on as many items as possible, including removing tariffs, with the more complicated elements of the communications regulatory dialogue being pursued on a longer timescale. There is too much technology (ict) to be gained to let a deal slip away. And this can only be achieved by industry keeping up the pressure to make it happen. The European ICT industry is seeking a deal on regulations covering areas such as product and protocol standardization, e-labeling, and Neil McMillan is a Partner in Brunswick’s Brussels office, advising on European intellectual property. They also want access to the US market for all ICT public affairs. He is on the Board of the American Chamber of Commerce to the equipment meeting International Electrotechnical Commission (IEC) EU and Vice-Chair of its Trade Committee. Before joining Brunswick he was standards. And they want better cross-border data exchange rules, Director in the UK Prime Minister’s European and Global Affairs Secretariat, and UK Permanent Representative to the World Trade Organization in Geneva. particularly covering data protection, as well as aligning regulations that He also chaired the successful 1997 WTO talks which liberalized global affect “cloud” computing. Stakeholders in the EU and US also want telecoms markets. both sets of authorities to reaffirm their joint commitment to maintain David Sutphen is a Partner and Head of Brunswick’s Washington, DC office, the status quo on internet governance, and to ensure that the internet advising corporations and nonprofits on strategic communications, ecosystem remains open to innovation and development of new reputational and public affairs matters, with a focus on media, technology, commercial applications. telecommunications and diversity.

Brunswick Issue seven 37 Review Summer 2013 South Africa was dragged back into the global media spotlight last year when industrial unrest in the country’s mining MASTER heartland left 44 people dead, making 2012 the most protest-filled year since the end of apartheid. At the same time, the government OF ITS FATE launched perhaps the most comprehensive and ambitious development plan in its South Africa emerged from apartheid almost 20 history, with widespread public consultation. years ago, but lately has been straining under the Here, Thero Setiloane, CEO of Business Leadership South Africa, an advocacy group weight of expectations. Thero Setiloane, CEO of for the country’s largest businesses, sets Business Leadership South Africa, explains how out the challenges facing business and government in South Africa, and considers business leaders are working with government to the way both sides are communicating their get the country’s development goals back on track renewed push for “inclusive growth.” We need to stop thinking about public affairs as being about gaining “access” to a government minister, or something dark and mysterious going on behind closed doors. Having an honest, constructive, public relationship with government and labor is vital in any country, especially one with significant developmental challenges. Public affairs is about defining the most productive and important contribution that business can make. It is about helping those creating and implementing policies. Trust is an essential, often elusive, ingredient; and as recent events have underlined, its absence can hold back a country’s progress.

38 The bludgeonings of chance Africans, or that fewer than 60 percent of The tragic events in the mining industry last children finish primary school, had started year raised serious questions about the kind to become just statistics in our collective of country South Africa has become and the imagination. Business bemoaned affirmative way that we communicate with each other. action and government corruption; As a nation that has experienced the most government cited examples of cartels and “The positive outcome from dehumanizing of systems, the images that complained of “lazy capitalists” who would all this tumult is that we have we saw on our televisions reminded us of our rather “collude than compete.” All sides darkest days and affected us deeply. seemed, publicly at least, to retreat to their started to see a real change in During the transition from apartheid, own corner as if they could just get on the way that business and there was a widespread appreciation by with things in isolation from one another. government, business, and labor of the need The social challenges in South Africa government engage” to jointly communicate a collective desire to have, correspondingly, become more acute put the country first. That desire to build ties and the established mechanisms to resolve across previously compartmentalized those challenges have not been working. The populations and sectors was strong, and mining strikes last year were not just about there was a sense that social capital – what wages; they also reflected a problem with the the World Bank calls the “glue that holds existing neo-corporatist framework. The rise The NDP is the master plan for growth [society] together” – was growing. Those ties, of new unions meant that some companies, and development and it addressed the bolstered by regular interactions between which had effectively outsourced employee country’s failings and constraints. It groups, create trust, lower the costs of relations to one union, now found that they recognized that “long-term growth and business, and reduce the chances of failed had difficulty speaking directly to their investment requires trust and cooperation agreements. It was about communicating workers. Given the imbalance of information between business, labor, and government,” across previously solid dividing lines. between employee and employer in any and acknowledged that levels of trust in There was also a sense that a neo- negotiation, the lack of a trusted worker South Africa are low. corporatist model of economic organization – representative – in the form of a single, The government’s forthrightness has where the national representatives of business, mutually respected union – meant that opened up a new space for an honest labor, and government voluntarily cooperated demands were made that would have made national debate which we in the business to create a competitive economy – was the entire sector unprofitable. community have embraced wholeheartedly. possible. Combined, these strong, trusted On our side, we are committed to working relationships, operating within a robust Bloody, but unbowed with government to leverage our respective bargaining framework, were meant to provide I believe that the positive outcome from comparative advantages to create an a platform for growth and development. all this tumult, however, is that we have environment for growth, and we recognize Somewhere along the line, things started started to see a real change in the way that if we are asking government to get its to fall apart. All three sides seemed to lose that business and government engage house in order then we must do the same. track of the scale of the problem, and too with one another. A key sign of this was the I think we are starting to see a more many people were left behind by the solutions exhaustive consultative process that constructive, positive style of debate, that were attempted by all parties. the South African government followed in the accompanied by a new frankness, openness, Social realities, such as the fact that preparation and adoption of the National and willingness to engage on both sides. We social grants make up 70 percent of the Development Plan (NDP), which preceded need to continue to broaden that relationship to income of the poorest 20 percent of South the mining strikes. ensure that all social partners are included.

THERO SETILOANE BUSINESS LEADERSHIP SOUTH AFRICA

Thero Setiloane is CEO of Business Leadership South BLSA defines its mission in unusually broad terms for Africa, an independent association representing the a business organization: it is “fundamentally, about country’s largest businesses, as well as major multinational business being truly committed to make change happen investors. Before joining BLSA, Setiloane was at mining for the better with government.” Its goals are to see a group AngloGold Ashanti, overseeing the company’s doubling of South African business in 30 years, but its environmental and ethical standards, and has also worked “broader social vision is to promote inclusive growth” in the telecoms, agricultural and private equity sectors. through higher per capita incomes.

Brunswick Issue seven 39 Review Summer 2013 CHINA’S CHARM OFFENSIVE China is taking steps to exert more cultural influence on the international stage. How should this be interpreted by those doing business with the emerging superpower? by st. john moore, brunswick, beijing and ilse schache, brunswick, shanghai

he press coverage of China’s first lady, Peng Liyuan, “There are now 353 of them in 104 when she accompanied her husband, President Xi countries, part of what [then President] Jinping, on his first trip abroad as China’s leader in Hu Jintao described in a 2007 speech as March, was almost universally fawning. In London, China’s effort to ‘enhance culture as TheT Telegraph talked of “the ‘Kate Middleton effect’ of China’s part of the soft power of our country.’” new first lady;” Spain’s El País, in a nod to her good looks, dubbed Hanban, Roasa reported, plans to open her “La Mejor Modelo para China” (The Best Model for China); 1,000 Confucius Institutes by 2020 and Time magazine put her on its “100 Most Influential People to spread Chinese culture, much in in the World” list, in the “icons” category, along with Aung San the way that the British Council and Suu Kyi, Beyoncé, and Michelle Obama. In China, some of the Alliance Française have done for panegyrics about her public appearances were off the charts. Britain and France over the years. The coverage was due in part to the fact that Peng is a genuine In another move on this front, star who has been wildly popular as a professional singer in her China inaugurated its first China native land for decades. But internationally it was also about the Public Diplomacy Association (CPDA) in January, “promoting rarity of seeing such a glamorous image projected by a leading China’s soft power by mobilizing and coordinating social figure of the emerging superpower. For many, there was a question resources and civilian efforts for Chinese public diplomacy,” lurking behind that new image: as the Los Angeles Times put it, Li Zhaoxing, chairman of the Foreign Affairs Committee of “How the Communist Party handles her may be a clue to its China’s National People’s Congress, and president of the willingness to modernize.” association, said in a speech at the time. Since the transfer from the fourth to fifth generation These missions will also have a somewhat harder-edged of communist leaders in November, much analysis has focused diplomatic aim. China has favorable conditions for public on the style, approach, and priorities of Xi. diplomacy but also faces serious challenges, Ma Zhengang, Even before the emergence of the first lady there were signs that Deputy President of the CPDA and former Chinese Ambassador China was undergoing a significant change in the way it wanted to to the UK, said at the inauguration. “A solid job of public be perceived on the international stage. “The effort began in diplomacy requires tangible effects and fruits, rather than earnest in 2004 when Hanban, an organization that falls under the insubstantial things. Public diplomacy should serve to guard Ministry of Education, began establishing Confucius Institutes at China’s lawful rights and interests overseas and stabilize external universities around the world,” Dustin Roasa, a former US circumstances,” Ma said, according to China Daily, an English-

diplomat in Asia, wrote in Foreign Policy magazine last November. language newspaper with the official stamp of approval. Sekretarev AP Photo / Ivan © Photograph:

40 Stepping off the plane in Moscow on her debut diplomatic trip and wearing Chinese designer clothes, China’s first lady Peng Liyuan wowed the world

key that opens all doors, secures long- term business access, and solves all problems. However, as China continues to develop, there is a growing maturity to how its government engages both with the outside world and its domestic constituents. In today’s China, foreign companies must adopt a more sophisticated, substantive, and multifaceted approach to public affairs. That means building strong institutional relationships with those government stakeholders that matter to their business – presenting a persuasive, local value proposition is a cornerstone of this approach. This is not to suggest relationships are not important – they are. But they are simply important in the same way that relationships are important in Brussels or Washington.

A NEW MODEL Knowledge of how China’s recent developments have altered its priorities What people, especially those doing business with China, is also key to understanding shifts in the country’s external want to know is what such subtle changes signify about the engagement. For the past two decades, China’s economic model country’s evolving method of engagement with both external has been overwhelmingly investment-led. Provinces and cities and domestic constituents. vied to attract foreign companies and a well-placed personal China’s pace of change means that it is still often connection could indeed open many doors. misunderstood. There are perhaps as many urban myths about Today, the authorities in Beijing see it as a top priority to China today as there are skyscrapers dotting its massive cityscapes. move China away from its investment-driven, export-focused For example, just as in reality the Great Wall of China cannot be model. Failure to do so, they feel, will undermine the country’s seen from space, the idea that doing business in the Chinese future growth and stability, and potentially undermine the market revolves solely around guanxi (commonly translated as Party’s credibility and authority to rule. The incentive for action “relationships” or “connections”) is not true. is clear. Certainly, Chinese officials want to ensure not just that more As a result, it is no longer the size of investment that is important people learn to speak Chinese and appreciate Chinese culture, but but the quality. For investors, this marks a distinct change. It is that Chinese culture positively supports the country’s expanded critical, therefore, that companies clearly articulate how they global engagement. Yet, when it comes to doing business in China, can help China achieve its wider objectives – not just their own

Photograph: © AP Photo / Ivan Sekretarev AP Photo / Ivan © Photograph: many foreign investors wrongly believe that guanxi is the master business objectives.

Brunswick Issue seven 41 Review Summer 2013 The emphasis on quality means that investment is no longer practical help to address the issues that keep officials awake at enough to maintain one’s license to operate. Government night – improving environmental protection, attracting value- stakeholders demand that companies employ best practice in added manufacturing, managing the urbanization process, and their businesses in China and are responsible corporate citizens. so on – will win advocates. Those that fall short are now more at risk of being called out by the authorities – and the public. THINKING LOCAL As part of the reform process, an important internal trend is the TECHNOCRATS RISING changing power relationship between central government and Another important change is the professionalization of the provinces, with more authority being devolved locally. Of government itself. China’s 33 provincial level regions, 24 are currently led by officials During the recent National People’s Congress (NPC) in who simultaneously hold powerful local and federal political March, this was illustrated by a number of key appointments. The positions. This is in order to ensure that national policies are finance portfolio is a case in point, where Zhou Xiaochuan was carried out at the local level. retained as the head of the People’s Bank of China; Lou Jiwei, All too often, foreign companies prioritize Beijing at the former head of China Investment Corporation – China’s powerful expense of local government. But companies now need an sovereign wealth fund – was appointed Minister of Finance; engagement program that reaches both central and local levels. and Gao Hucheng, in charge of China’s These efforts are likely to be rewarded global trade negotiations since 2010, as approvals targeted directly at local was elevated to lead the Ministry of needs are granted more quickly. Commerce. These appointments of “now that china has become Indeed, the recognition at all levels proven technocrats underlined the more assertive and that companies have a central role to growing diversification of China’s top play in China’s “new economy” is leadership, moving away from a purely economically powerful, positive for foreign businesses. China’s political to a more managerial mindset. foreign companies may have private sector currently contributes It is widely accepted now that the to adjust their approach” around 60 percent of China’s GDP and challenges China faces can no longer be 40 percent of its jobs. But the policies addressed with blunt instruments, such of the past two decades have favored as sheer scale of investment. If China is to overcome its increasingly state-owned enterprises. With the investment-led model being nuanced and complicated challenges, it needs a new kind of senior diversified, the government’s task now is to open more sections of official in the top roles – one who brings experience, knowledge, the economy to competition, creating a more level playing field and expertise. These new Party leaders – from more diverse for companies that didn’t start out in the state sector. educational backgrounds, often with international experience – But the opportunities for foreign companies will be on China’s are better equipped to judge the real value of what foreign investors terms, as senior officials have emphasized. In remarks that offer, which is good news for companies looking to win business illustrate the new thinking, Wang Dongbin, member of the on merit. International Committee for the Promotion of Chinese Industrial Also good news for international companies is the continuing Cooperatives, remarked at a recent Tsinghua University forum: streamlining of the bureaucracy. A new round of administrative “Now that China has become more assertive and economically restructurings were confirmed at March’s NPC, further reducing powerful, foreign companies may have to adjust their approach the number of ministry-level organizations, which have already when dealing with Chinese stakeholders. Instead of insisting that been cut through three decades of reform from 48 to 25. China compromises on their rules and principles, foreign Nonetheless, there is still a fairly labyrinthine bureaucracy in companies may have to start considering what they can do to place with fewer ministers, meaning that government officials who accommodate Chinese principles and interest.” are already stretched for resources in many departments will be These comments were echoed by Zhang Xiang, a former increasingly required to do more with less. In future, officials will editorial writer for the 21st Century Business Herald, a business have even less time to engage with companies on matters not newspaper: “Foreign companies should start thinking of changing

directly relevant to their priorities. Companies that can offer their mentality. Instead of bringing international brands into / Corbis Press Qihua / Xinhua © Li Photograph:

42 China, foreign companies may have to consider ways to develop brands jointly with their local partners and bring them into the international market.” A renewed fight against corruption has accompanied recent government reforms. China’s senior leadership has been increasingly outspoken about the threat corruption poses to the Party’s hold on power, with trust in the Party and the government A Chinese teacher from the Confucius Institute at a school near severely undermined in recent years. Pretoria, South Africa. The first Institute in Africa opened at the University of Nairobi in 2005 In his first months in office, Xi began a new crackdown that included restrictions on use of public money for banqueting and A single beam cannot support a great house the purchase of luxury goods. This was in order to assuage growing public disapproval of cadres flaunting luxury possessions China’s cultural outreach should not be seen simply as they could not possibly afford on their official salaries. Also, for a “soft” effort for international exchange but part of a sophisticated, interlinked strategy to exert its growing power. the first time, the workings of the Party’s discipline watchdog have In his new book, China Goes Global, Professor David been made public. Shambaugh of George Washington University, puts it in The end result is that banqueting and gift-giving (which used context. “The Chinese have wisely learned one key lesson from to go hand-in-glove with the development of guanxi) has become studying the experiences of other previous powers: genuine an embarrassing topic. While the campaign may fade over time, global powers possess multidimensional strength. Chinese strategists have observed the failings of other powers that it is helping change the nature of guanxi. possessed strength in only a single dimension or a few, and they have thus concluded that it is important to build and DIGITAL FUTURE cultivate power comprehensively across a variety of spheres: The role of media in China has long been a thorny issue. At the the economy, science, technology, education, culture, values, military, governance, diplomacy, and other sectors.” March NPC, a major industry reform merged broadcast and print The proliferating Confucius Institutes are a key tool for watchdogs into one “super content authority” with a remit winning “hearts and minds” by offering people a window into spanning print, radio, and visual media, as well as oversight of Chinese culture, the chance to learn the language and help copyright issues. While the restructuring follows the general open up business opportunities. As former US diplomat Dustin trend of reform and streamlining, it is not a signal of liberalization. Roasa wrote in Foreign Policy magazine last November, “After investing tens of billions of dollars in Southeast Asia, China On the contrary, the government is likely to tighten control has now decided that its vaunted economic power, which has over content to inhibit interference or distraction as it seeks to bought it significant influence with regional governments, is not orchestrate the realization of its policy goals. enough. Beijing now wants to be loved, too. In this brave new The rise of social media and the government’s growing world of Chinese diplomacy, language and culture – and, yes, sensitivity to online backlashes creates a complex dynamic. In pop songs – are playing a major role in Beijing’s quest to be understood and, if all goes well, win the affection of Southeast many recent situations, online reaction has hampered the policy Asia’s 600m people.” options on diverse issues, from building a new chemical factory The effort extends across the globe, with new Confucius to changes in traffic rules. Foreign companies must also consider Institutes opened this year in Professor Shambaugh’s the influence that different stakeholder groups can have through George Washington University, the University of Namibia, digital media. The pressure can be both direct on the company and many more. and indirect through its effect on government policy. In fact, the media is a good place to look for clues about the This article draws from Brunswick’s review of China’s recent leadership direction and limitations of reform. The authorities were happy transition. The full report can be found at www.brunswickgroup.com to see the praise heaped on first lady Peng, for example, but St. John Moore is a Partner in Brunswick’s Beijing office. He provides didn’t want to see it go overboard. As The New Yorker magazine counsel to Chinese and foreign companies on cross-border M&A, public reported after Peng’s Moscow trip, “She has become the national affairs engagement, crisis management and corporate reputation. conversation piece – to the point where even the most mundane Ilse Schache is an Associate Partner in Brunswick’s Shanghai office. She specializes in financial and public affairs communications to support

Photograph: © Li Qihua / Xinhua Press / Corbis Press Qihua / Xinhua © Li Photograph: of her cyber fan clubs have begun to suffer censorship.” cross-border investment and M&A.

Brunswick Issue seven 43 Review Summer 2013 When the Porce III hydroelectric complex was inaugurated in Colombia in 2011, the media was notable for its absence. Located in a deep gorge PRESSURE some 90km from the city of Medellín, Porce III is the largest hydroelectric project built in Colombia in the past two decades. Construction of the $1.3bn, 660-megawatt facility required the relocation of 2,700 people, MANAGEMENT along with complex works to mitigate its environmental impact. And yet Porce III did not provoke the organized protests and extensive Luis Alberto Moreno, President of press coverage that have become standard for large energy projects with significant social and environmental impacts. In fact, the process of the Inter-American Development Bank compensating and resettling the affected families was carried out virtually is a keen advocate of public-private without incident. The few press reports on the project were positive in tone, and some even profiled families that expressed their satisfaction with its infrastructure partnerships. impact on their future. This outcome is remarkable at a time when large infrastructure projects Here he explains how building social almost inevitably attract scrutiny by the media, local activists and consensus early can avoid later resistance international advocacy groups. In Latin America and the Caribbean, this scrutiny is evidence of a thriving democratic culture where open debate and press freedom are increasingly the norm. But the growing sophistication of project-focused protest campaigns also poses a challenge to governments under pressure to generate jobs, improve infrastructure, and expand access to basic services. Indeed, in recent years numerous energy, transportation and mining projects in Latin America have either been delayed or canceled outright because of negative publicity and conflicts with indigenous groups or non- governmental organizations. This is a critical issue for the region’s development. The Inter-American Development Bank (IDB) estimates that in order to meet anticipated demand for services and become competitive with Asian economies,

LUIS ALBERTO MORENO

Luis Alberto Moreno has been President of the IDB since 2005. Before that, he was Colombia’s Ambassador to the US for seven years. In the early 1990s, he served in the Colombian government, including as Minister of Economic Development, and led a successful privatization program. Moreno has also worked in the private sector, focusing on investment in Latin America, and as a journalist he received a Nieman Fellowship from Harvard. In 2012, he won a Clinton Global Citizen Award for Leadership in Public Service.

THE INTER-AMERICAN DEVELOPMENT BANK

Established in 1959, the IDB is the leading source of development finance for Latin America and the Caribbean. With average annual lending of $10bn, the bank is a key regional provider of loans for infrastructure, energy, water, education and health.

44 Latin America will need to double its current infrastructure spending from make larger pre-emptive investments in the traditional best practice of roughly 3 percent to 6 percent of GDP. Most of these investments will involve community relations. Empresas Públicas de Medellín (EPM), the public partnerships with the private sector, which would need to commit more than utility that built Porce III, has a history of effective engagement with $100bn a year to infrastructure projects in the region under this scenario. stakeholders. For Porce III the company put together an experienced Today, fiscal and macroeconomic conditions in the majority of the team of sociologists, technicians, lawyers, and communicators with countries served by the IDB enable them to better meet investment needs extensive knowledge of the communities that would be affected by the with public resources than in the past. Lingering social issues are more than dam construction. public sector responsibilities; they are private sector opportunities. At the Starting in 2005, the team held hundreds of hours of meetings with bank, we have learned that the best partnerships are not short-term or affected families and established a negotiation mechanism that standalone projects. They are long-term commitments to share knowledge stakeholders considered fair, transparent, and equitable. EPM also ensured and create platforms for collaboration. that resettlement plans included measures to create economic We are building on our experience to strengthen all our infrastructure opportunities in the project area and steps to minimize the impact of work, especially the financing and implementation of these partnership migration pressure created by the project. projects. First, we are deepening our activities in the pre-investment On the environmental side, EPM hired an independent environmental stage. To increase the supply of works eligible for financing, we created a audit partner and invested $7m in projects to improve urban and rural special fund at the bank to finance infrastructure project preparation. sanitation in the four municipalities in the project’s area of influence. Second, we continue to finance these projects proactively through direct The company also carried out monitoring throughout the construction lending, co-financing, and guarantees. These partnerships enable us to period to ensure the effectiveness of ecological restoration around the support more complex and ambitious projects and to share the risk. Third, affected zone. we are exploring the mechanisms necessary to make infrastructure Throughout the project, EPM also reaped the benefits of a history of project financing viable through private pension funds. Last, we are helping effective engagement with its customers. With its reputation as a provider our partners to develop their regulatory frameworks and to evaluate and of potable water, sanitation, electricity, and telecommunications, EPM is structure projects. known for the quality of its customer relations and its flexibility that An effective engagement strategy cannot be formed without knowledge of enables low-income customers to manage their utility bills. The company the region, market, and community that a project will impact. So, with the also has a reputation for world-class communications campaigns that Economist Intelligence Unit, we have created the Infrascope index which continually reinforce its image as a service provider that is completely provides an objective analysis tool for assessing risk and evaluating the focused on improving the quality of life of its customers. environment for private infrastructure investment in the region. To be sure, the success of Porce III owes a great deal to other factors that are critical to public-private partnerships. Colombia has built a BUILDING CONSENSUS regulatory and institutional framework that helps to mitigate uncertainty How can these public-private and prevent corruption. And EPM has a long track record of designing and partnerships secure the necessary executing ambitious infrastructure projects. public support, and what does the Private sector involvement will be indispensable in taking on future success of Porce III tell us about how infrastructure challenges. We are working to improve the division of risk to build social consensus around a between public and private sectors, and on ways of structuring public- complex project? First, Porce III shows private partnerships so that they create value for taxpayers while that governments and companies must generating good earnings for contractors. But sound regulations, technical expertise, and financing are not enough. Latin America is full of well-designed public-private partnerships that have the necessary financing but are paralyzed by political, environmental, or civil society disputes. Without investing in communications campaigns and engaging the community, there is little hope of persuading them of a project’s benefits. Public perceptions shift in a matter of minutes, often fueled by media scrutiny, so effective communications must be a constant. The challenge, as Porce III has quietly proved, is to lay the groundwork The Porce III hydroelectric dam (left), a public-private project near Medellín in Colombia, encountered little public resistance, despite the relocation of 2,700 of social consensus so expertly people. Luis Alberto Moreno of the IDB says social consensus played a large that any potential controversy is part in its success. Above: the project during construction. Photographs: EPM nipped in the bud.

Brunswick Issue seven 45 Review Summer 2013 companies to make an adequate return on capital (thus, encouraging investment in infrastructure) by including in its evaluation RULES each company’s business plan. The water industry in any country is an OF ATTRACTION issue of national security and it is natural that it should be regulated. Thus, a company must take a long view when drawing up plans Governments that have set clear rules for the private to run such utilities. When YTL first bid for sector have benefited from infrastructure investment. Wessex Water, we planned on the basis of having stewardship over the asset in Francis Yeoh, Managing Director of YTL – one perpetuity and considered its role in the of Malaysia’s largest companies – argues that others community as well as profitability. What ultimately convinced us to invest was the would do well to follow suit UK’s transparent regulatory framework, assuring investors that there will be a stable regime under future governments. YTL’s UK experience mirrors our other investments. In Singapore, for example, the government divested its power industry in Francis Yeoh has grown Malaysia’s YTL Why did we choose these markets for 2007 to three foreign operators – Tuas Power Corporation from a family-owned our most significant investments? They were to SinoSing Power (a unit of China Huaneng construction company founded by his all tremendous business opportunities, of Group), Senoko Power to Lion Power (a father in the 1950s into one of the world’s course, but just as important was that these Japanese consortium), and PowerSeraya to leading utilities companies. Here he countries offered a transparent and coherent YTL. The government said that divestment argues that companies operate best in an regulatory framework. Such a framework was part of a plan for a “competitive yet environment where governments provide gives both local and foreign companies an stable power generation market” that would a clear, stable, and predictable regulatory equal chance at owning and operating key also encourage private sector investment. framework. In other words, it is not so businesses transparently, and it fosters Should other governments, especially in much a light touch as the right touch long-term and sustainable transformation for developing countries, follow suit and be where regulation is concerned. industry and community, especially in Asia willing to introduce transparent coherent where supply of these strategic utilities and regulatory frameworks for a privatized As a pragmatic business owner, rather than an other infrastructure is low compared to market? If more did, I believe economies economist, my experience has convinced me developed economies. would change for the better and the evidence that there is an alternative to traditional tax- In the UK, Wessex Water is a good and-spend policies of governments in order to example of such a system at work. We bought meet the pressing need for new infrastructure, the company from Enron in May 2002 and both in the developed and fast-growing made the investments needed to make it the economies. In many places in the world, an country’s top water and sewerage treatment investment shortfall has been restraining operator – and that’s not just us saying it: growth. The solution, I believe, is to fully Wessex has consistently topped the embrace the private sector in order to build, performance rankings from The Water Services operate, and maintain infrastructure. And Regulation Authority (known as Ofwat). for this to work most effectively, it is essential This was made possible by Ofwat’s clear for companies to have a reliable regulatory structure, which mandates it to set price “A transparent, and coherent framework under which they can make rational limits, protect customer interests, encourage regulatory framework ... fosters investment choices. competition and investment, and administer long-term and sustainable The core business of our company, YTL, is and enforce the licensing regime for water utilities. Our businesses include ElectraNet in and sewerage. Companies must provide an transformation for industry Australia (power distribution), Wessex Water “efficient and economical system of water and community” in the UK, Jawa Power in Indonesia and supply” or face penalties. Ofwat’s five-yearly PowerSeraya in Singapore. We also have large reviews aim not only to keep prices for mobile internet and public transport projects. customers down, but also to permit water

46 supports this. A 2008 study (Privatization Revisited) by the Asian Development Bank (ADB), concluded that “a change in the structure of ownership (from government- to private-owned) is not sufficient to make [private sector participation] work; rather the presence of an enabling environment that harnesses competition is necessary for success. Conditions under which the private water supplier can be more efficient include an innovative approach to competition, effective regulation, good governance and contract enforcement, and sufficient effective demand.” In other words, the case for privatization was mixed – it brought improvements in efficiency and environmental sustainability only in situations where the institutional framework was in place to ensure companies made the necessary investment (also, where governments supported the broader economy). Indeed, it’s not just governments that need to think about what is required to make it work: businesses also need to plan long- FRANCIS YEOH term and resist the short-term pressures Francis Yeoh is Managing of the market. Capital markets, also, will Director of YTL, one of Malaysia’s have to cater for the longer-term nature largest companies. A civil of infrastructure investment, perhaps with engineer, he took charge of the group in 1988. He is a founder instruments such as 50-year bonds. Investors member of the Malaysian seem keen for options other than Business Council and Capital merely short-term equity markets Markets Advisory Council, that have proved to be capricious and Member of The Nature and unstable. There is no Conservancy’s Asia Pacific Council. Yeoh also sits on the shortage of liquidity in Asian advisory council of London economies, where entrenched Business School, Wharton School saving habits provide ample and INSEAD. Ranked as one of ammunition for long-term funding “Asia’s 25 Most Powerful and of key strategic infrastructure. But Influential Business Personalities” by Fortune magazine and Business as the ADB report noted, the region has a Week, Yeoh was awarded conspicuous lack of transparent, coherent Commander of the British regulatory frameworks. Empire, for philanthropy, in 2006. Therefore, governments should seek to YTL GROUP strengthen their legal instruments and amend their existing economic regulations, YTL Group has a market many of them subject to hidden capitalization of about 31bn Malaysian ringgit ($10bn) and protectionism – or what I call “regulatory assets of 52bn ringgit (March nationalism” – either by design or by default. 2013). The group’s core After all, what could be better for business business is ownership and prospects than a regulatory framework that management of regulated is consistent with the rule of law, steeped in utilities and infrastructure assets, serving 12m customers accountability, and which honors long-term on three continents. thinking and responsible stewardship?

47 THE BANK JOB One of the most lobbied men in Brussels, European Internal Market Commissioner Michel Barnier, has a continent of constituents to consider

interview by philippe blanchard, brunswick, brussels Photograph: European Union European Photograph:

48 With 27 sovereign member states and still expanding, the European sector can clearly contaminate an entire sector. Debates over bonuses, Union is a complicated political entity. So the process to repair remuneration, and manipulation of indices have dominated the the damage done by the financial crisis was bound to be a tortuous headlines and put the sector in a bad light. one. It is no surprise, therefore, to learn that Michel Barnier, I think that the industry needs to make all possible efforts to regain the EU Commissioner for Internal Market and Services – which trust by communicating openly that mistakes have been made. includes responsibility for financial services – keeps a color-coded Representatives of the industry also need to show that they are spreadsheet to track the progress of the dozens of new financial receptive to the policy initiatives underway to restore confidence in sector reforms on his plate: green for proposed, orange for financial markets ... and act on those, not just talk about change. negotiating, and purple for passed. On top of this complexity is the fact that, unlike the US, the EU You are one of the most lobbied Commissioners in Brussels. Do is working to reform its financial services sector while also dealing lobbyists help in the process? with a full-blown sovereign debt crisis. It can seem, at times, like The regulation of the financial sector at the EU level attracts a lot of trying to change the wheels on a bus while it is still in motion. The attention inside and outside the EU institutions. This is why we have job of steering this process and trying to keep all the disparate numerous contacts with all stakeholders, including Members interested parties on board requires a deft political hand, including of the European Parliament and representatives of member states, an ability to communicate complex and difficult issues to people NGOs, consumers, and the industry. with sometimes conflicting agendas. There is not always a single answer to a question, and people tend In this interview, Barnier explains to Brunswick’s Philippe to defend what is in their own interest; that is a normal part of the Blanchard how he deals with the challenge of communicating with process. My job is to listen to everyone and then make my own mind the public, industry lobbyists, and politicians as he navigates the up with all the various interests in mind. labyrinth of Brussels. We are sometimes confronted with the criticism that we are listening too much to sectors affected by new regulation. The concern Your role is central to dealing with the European debt crisis and putting seems to be that new proposals are in the end too industry-friendly or in place regulations to both ensure a level playing field for banks and not sufficiently strict. others to compete, and make sure that there is not a repeat of the On the other hand, others argue that the new rules are far too 2008 financial crisis. With such a large program of reform, has it been strict and detrimental to growth. The reality is that we have to strike a difficult to keep the support of key players and the general public? balance, ensuring intelligent and appropriate regulation and at the Communicating the need for such changes is a challenge because on same time make sure that the financial sector can continue to lend the one hand, for companies, the new laws often mean fundamentally to companies and support the real economy. All regulation has a cost, changing the way they work. This is never easy, even when it is in their but when it comes to financial regulation, I am convinced – and our own interest in the long run. impact analyses support this – that the benefits brought by enhanced For European citizens, it is not easy to get across the fact that financial stability far outweigh the initial compliance costs of the new many countries have been living above their means. The fact is that rules. To get this balance right, we are in continuous dialogue with all many of the reforms are painful, with very real consequences on stakeholders and use the results of public consultations and green people’s lives. However, I hope that we have managed to explain papers [discussion documents], as well as cost-benefit analysis that these reforms are essential to create a sound financial system to get the complete picture before tabling new proposals. which can be a platform for growth. We have worked constructively together with all institutions and It seems that the regulatory regimes that are now in place in the US stakeholders to strike a balance between strengthening prudential and Europe are actually diverging (for instance on issues such as requirements – to ensure financial stability – and allowing the remuneration or clearing). Is this going to create a competitive gap financial sector to ensure a sustainable flow of credit to the economy, between the EU and the US? so as to support growth and investment. Everybody will benefit in the end if we are successful in implementing these reforms. MICHEL BARNIER The aftermath of the crisis has seen regular “banker bashing” EU Internal Market and Services Commissioner in the media, and the image of the financial services sector is severely damaged. What do you think can be done to restore trust Michel Barnier’s appointment in 2010 put him in the middle of the in the industry? Anglo-French “psychodrame” over financial services reform, as Le Monde The reputation of the banking sector has suffered since the described it at the time. He has handled the role with the diplomatic beginning of the crisis. It became clear that the sector had not been aplomb that might be expected of a former French Foreign Minister, guided by the highest standards regarding transparency. It had not winning praise for his ability to balance the push for reform with the been living up to the highest moral standards in some respects, and need to protect an important European industry. overall it had not been sufficiently contributing to the benefit of This is the second time at the EU for Barnier, having been society as a whole. Commissioner for Regional Policy and Reform from 1999 to 2004. The fact is that taxpayers had to bail out the financial sector and He was elected to the French National Assembly at 27 and has served as they have, understandably, resented this. Of course, one should not Minister of European Affairs (1995-97) and of Foreign Affairs (2004-05).

Photograph: European Union European Photograph: generalize, but the behavior of certain individuals or groups within a

Brunswick Issue seven 49 Review Summer 2013 I do not think that we are in the process of creating a competitive First of all, let’s not forget that the story of Europe is a success story. gap between the EU and the US. On the contrary, we have an open Despite the current difficulties, we have achieved a lot over recent and constructive dialogue where we try to deal with the relevant decades and EU citizens are living in much better conditions today matters as rapidly as possible. compared to 50 years ago. Financial markets are global. That is why regulatory reforms need However, the common achievements are under threat due to the to be implemented and coordinated internationally. The G20 has taken economic difficulties that certain member states are facing. The the lead to ensure that there is regulatory convergence. International financial crisis and the austerity measures put in place so far have forums like the Basel Committee on Banking Supervision [which sets triggered debates and concerns about the ‘European idea’ and I global standards], or the Financial Stability Board [which coordinates understand why. It can also be observed that in times of crisis, at a global level] provide for international membership and discussion national interests are more prominent. It is our responsibility to build of solutions. Otherwise, new room for regulatory arbitrage – [taking trust and confidence in the European idea among European citizens, advantage of lighter regulatory regimes] – will be created. in particular the younger generation, which is facing serious All members of the G20, including the US and the EU, are difficulties in terms of unemployment. We need to communicate committed to putting in place the measures that have been agreed. better, and emphasize that Europe and its single market are part of We in Europe are well on track to meet all our commitments. Others the solution, not the problem. need to do the same. In many cases, new regimes are developed by international bodies, for example the Basel Committee. How do you see the next few years in terms of institutional changes? This is helpful since it ensures that all the jurisdictions concerned In order to be convincing, a number of structural changes are needed: are part of the process from the beginning. We realize that in the democratic legitimacy of EU institutions needs to be improved, certain areas, jurisdictions outside the EU are not always moving the benefits of EU harmonization in certain areas needs to be better in the same direction or at the same pace. I am in constant dialogue explained to the voters, and we need to accept that we can only with my international counterparts in order to ensure that we move operate in a single market with a single currency if we all play in parallel. according to the same rules and respect them.

How is the EU’s relationship with the US? Do you think the EU-US What does the European Union stand for in 2013? free trade agreement negotiations will be a good forum to address The EU has a lot to do in terms of communication. EU citizens have these regulatory divergences? the feeling that Brussels is too remote from their day-to-day It is not always easy but we have a very close working relationship and lives and does not resolve but rather creates burdens. EU institutions both sides are committed to avoiding new areas for regulatory must improve their acceptability by getting closer again to the needs arbitrage. Furthermore, the upcoming EU-US free trade agreement of EU citizens. Europe is and will remain the largest area in the world negotiations will provide an important opportunity to discuss certain where people can live together in freedom and democracy, financial regulation issues and to make sure that the room for surrounded by high standards of tolerance and security and, last but regulatory arbitrage is further minimized. not least, in peace. All the reforms we are working on will contribute to the The “European idea” is not as vibrant as it used to be. Recent elections reestablishment of confidence in the European financial markets and in France, Italy, and in northern Europe demonstrate disenchantment will help to get Europe back on track for sustainable growth. with the European idea (which is now perceived as synonymous with austerity and external control) and the renewal of nationalistic Philippe Blanchard is Senior Partner in Brunswick’s Brussels office. agendas. What do you think can be done to communicate the European He provides strategic counsel in developing and implementing pan-European agenda to voters? public affairs and corporate communications programs.

A NEW RULEBOOK products to protect consumers, together with safer rules for retail Commissioner Barnier has outlined three streams of reform investment funds.” g Creating a banking union to strengthen the euro g Building new rules for the global financial system “This is the area where the most fundamental changes in the “The main initiatives are a new single rulebook of prudential requirements supervisory system for European banks have to be implemented. The for banks; enhanced frameworks for securities markets; market abuse responsibility for banking supervision will move from the national to prevention; management and resolution of bank crises; deposit guarantee the European level through a Single Supervisory Mechanism, under schemes; rules on hedge funds, private equity and derivatives trading.” the European Central Bank. The structure will ensure strict and g Establishing a safe, responsible and growth-enhancing financial sector objective supervision of cross-border banking activities. The single “The major initiatives are the establishment of European Supervisory supervisor is key for breaking the link between sovereign and banking Authorities; the development of risk-based prudential and solvency risks. We have to develop a single resolution mechanism to address the rules for insurers (including a new European supervisory framework need for a more centralized and stronger crisis management capacity for insurers); improved investor information for complex financial to tackle the failure of banks within participating member states.”

50 TRUTH, JUSTICE, AND THE AMERICAN CONVERSATION

“Facts are stubborn things,” John Adams, one of America’s Founding Fathers, once famously remarked. For Alan Murray, life after The Wall Street Journal means a pursuit of pure facts, as he takes up his new role as President of the Pew Research Center. His mission there, he says, will be to harness Pew’s powerful research capabilities and deep insights to drive a more pragmatic discourse, especially in Washington, DC, where he has spent most of his career. Here he talks to Brunswick’s Darren McDermott about the erosion of the nation’s political dialogue and Pew’s role in helping to restore it What drew you to the Pew Research Center after a career in journalism? “NOT A THINK TANK, A FACT TANK” I spent most of my career in Washington and over 25 years I watched the steady decline The Pew Research Center has, over more in the ability of well-intentioned people from than two decades, built a reputation as both parties to come together and have a nonpartisan, “just the facts” research conversations about getting things done in organization on a mission to educate the public interest. I had often thought that if ALAN MURRAY Americans on a range of topics. I was ever going to go into the nonprofit world The Pew Research Center started life to do something, what was it that I cared Alan Murray became President of the Pew as the Times Mirror Center for the People about enough? It is attempting to address Research Center in January 2013, after & the Press, the polling arm for the Times that serious rift in our civic culture. a distinguished career in journalism of Mirror group, and was eventually taken The Pew Research Center is one of the more than 30 years. over in 1996 by Pew Charitable Trusts, very few places that has maintained the ability Before joining Pew, he was Deputy which remains its financial backer. to speak to people on both sides of the aisle. Managing Editor and Executive Editor, In 2004, Pew consolidated its work It has done that by focusing on facts. As the Online, for The Wall Street Journal. under seven “project” headings, each of folks here like to say: ‘It’s not a think tank, it’s Murray spent a decade as the Journal’s which has a significant communications a fact tank.’ We don’t do advocacy. We don’t Washington, DC Bureau Chief and then component: 1) People & the Press 2) make policy recommendations. We don’t take served as Washington Bureau Chief for Excellence in Journalism 3) Internet & sides. We don’t get in fights. We don’t do CNBC where he co-hosted “Capital Report American Life 4) Religion & Public Life punditry of the sort you see on MSNBC or Fox with Alan Murray and Gloria Borger” and 5) Hispanic Center 6) Global Attitudes, News. We just provide facts because we also wrote The Wall Street Journal’s weekly and 7) Social & Demographic Trends. believe that at the core of democracy is Political Capital column. Pew Research Center’s parent company, trusted information. Murray has a bachelor’s degree in Pew Charitable Trusts, is backed by the Sun English literature from the University of Oil Company fortune. Pew partners have How can better facts improve the North Carolina and a master’s in economics included the Bill & Melinda Gates Foundation democratic process? from the London School of Economics and news organizations, including An educated citizenry requires a steady diet and Political Science. The New York Times and The Economist. of trusted facts. One of the things that has happened in our society is that – and I’m sure you’ve had these experiences – it is sometimes hard even to have a dinner table conversation about politics or public policy boots on the ground. If you’re the person our times because it started as this totally without people violently disagreeing about wielding the spoon you may think that is a frivolous – ‘What are you doing?’ ‘I’m making things that should be matters of fact. Part of good thing, but I think it is reasonable to ask a ham sandwich’ – kind of meaningless chat it is because they get their information from whether it is the best thing for democracy. tool. And it’s evolved into a pretty high-end such disparate places, which has made it tool for communities of interest to share more difficult to create a factual base. Having There’s a discussion about partial attention – information. A lot of people who don’t use an organization like Pew means that at least a theory about “peak attention” – where it in that way don’t understand this ... It’s we can say, ‘Folks, here are some facts. Here people just can’t focus because they have so a discovery tool. We get a lot of traffic to our are some things that we ought to be able to much information, they need screening deepest reports through Twitter. agree on. You can have your debate but let’s criteria. How does Pew help Washington with start from here.’ its “attention deficit disorder” when it comes Given your background, do you want to to information? change what Pew does, or how it does it? How have changes in the media landscape That is a really interesting question. I think I have launched a six-month strategic review, affected this dynamic? a lot of it is just about getting the right but some things are pretty clear. This We did a study of the election last year and information to the right people at the right organization has no peer in its relationship compared it with four years earlier. It showed moment. I think part of the trick is about with traditional media and its ability to get that a much larger percentage of the becoming much more aggressive about its research placed, [but] clearly digital narratives in the press were driven directly injecting information into the dialogue at the dissemination is a big part ... We’re in the by the campaigns, as opposed to being right moment and that is where social media process of creating a new blog that will help developed by in-depth reporting. So, clearly, tools become incredibly valuable. us disseminate this vast set of data we have. the news media are becoming more spoon- You know, the evolution of Twitter to me Also, our major tool has been telephone fed, in part because they just don’t have is just one of the most fascinating stories of survey research [but] people are doing a lot

52 with online polling. So, with online tools effects of the crisis would go away before the becoming more and more powerful, we are economic effects; and the economic effects launching a major effort to figure out what would go away long before the political effects. our next generation of polling will be like. I think that’s exactly what we’re living through. Look at what happened after the Great Do you foresee a future in which your Depression. The political impact on people’s colleagues at Pew are live-tweeting attitudes towards business that followed about political events such as Congressional the events of 1929 lasted for decades. hearings, State of the Union addresses, and so on? Do you think the work Corporate America We’re not staffed to do it tomorrow, but I must do is not so much in Washington don’t see why not. Another really important but in their communities and among their piece of this is the graphical presentation employees and customers? of data. A good infographic will get 10 to 100 Our data show that business has a problem times the engagement of a straight news with the public. We are also seeing how story. I’ll give you one example. We published technology has put enormous power in the our ‘polarization’ study last summer, showing hands of individuals and in groups to shape how the polarization of the public along things, forcing an enormous amount of partisan lines had gotten much greater over transparency on organizations. It’s a big and the past 20 years. We had timelines and complex question and is being affected by the published all the questions that it was based digital revolution. on – you can see how each question breaks One study that we are planning is on the along party lines. degree to which technology is actually I want to take that one step further and increasing this ‘bubble culture,’ where if say, ‘Okay, let’s create a widget where you can you’re on the left you only hear from other answer the questions yourself.’ A group of people on the left and so on. That can students could then answer the questions, for undercut democracy, as the essence of example, or you could ask your Rotary Club, the public square is to get conflicting then compare your results and see how viewpoints. The bubble is being you line up with the rest of the country. Things created partly by consumer choice like that can be incredibly educational. as people are choosing to live in a The next step – a leap of faith – assumes media world that reinforces their that a better educated electorate will actually biases ... Business is pretty lead to better government. much lined up on one side of the roster. If we divide the The research seems to show that new country by those who work for technologies, such as tablets and other private business and those mobile devices, have really helped with who work for government engagement? and nonprofits, we’re going Book readership is up and so is news to have a real problem on consumption. In terms of news consumption, our hands. mobile devices have made a huge positive difference. The problem is on the news production side, because no one has figured out how to monetize that in order to pay for journalists in the field.

Turning to Corporate America, can its image with the citizenry be repaired after the damage done in recent years? Look, 2008 was a pretty serious event and I think it’s created a real problem for companies. I said at the time, and I think events have borne me out, that the financial

Brunswick Issue seven 53 Review Summer 2013 Given what’s happening to journalism, do world, in the way journalists think about their you see Pew filling a gap that has opened job. We never thought marketing was part of up in terms of informing the public? what we did as journalists, but now in the Journalism is shrinking. At the same time, in swarm you have to make sure that you are the think tank world you have increasing getting the right information to the right person “... business has polarization. Most think tanks feel the need at the right time – that is a marketing job. a problem with the to ally with one side of the debate or the Really, we always were marketing, but we didn’t other. And then in the academic world the realize how much we were. Now it is clear. public. We are also seeing process of peer review tends to keep them how technology is forcing doing things that are of much more interest I guess the same is true for everyone in the to their peers than they are to the general digital world: brands have to do the same, an enormous amount public. So, there is – I think – a need for, a Pew has to do the same? of transparency on hunger for, solid, trusted, nonpartisan One of the big themes in our State of the News organizations” information. It’s just getting bigger and Media report is that the news media has lost bigger. That’s the space we are operating in. its role as the intermediary. Companies, government officials and politicians are finding You have this fight between different media more and more ways to go directly to the operating models, the “swarm” versus the audiences they want to reach, without going traditional top-down “pyramid” approach. It through any kind of journalistic filter. will be interesting to see how they fight it out. I believe that in the swarm great brands like And people differ on whether that is a good The Wall Street Journal will matter. As long as or a bad thing? there are people out there who want to know At Pew Research we don’t take a position on that the information they are getting is that. We just think it’s a fact. reliable, there will be demand for brands that provide them some guarantee of that Darren McDermott is a Director in Brunswick’s New York office. He spent 18 years at The Wall reliability. But you have to engage differently; Street Journal as a reporter and editor in New York, you have to be much more proactive. Hong Kong and Singapore. He was most recently This means profound change in the media Deputy Managing Editor of WSJ.com.

PEW ON COMMUNICATIONS AND...

POLITICS more negative than positive about both SOCIAL TRENDS g In the 2012 race for the White House, candidates – although Romney fared g Whether as a by-product of overly journalists played a decreasing somewhat worse. protective parents, the age of terrorism or role in what voters heard about the a media culture that focuses on dangers, presidential candidates. Only about a JOURNALISM Millennials cast a wary eye on human quarter of the statements in the media g Nearly a third of US adults nature. Two-thirds say “you can’t be too about the character and record of Barack (31 percent) have stopped turning careful” when dealing with people. Obama and Mitt Romney came directly to a news outlet because it no longer Yet they are less skeptical than their from journalists, while about half came provides them with the news they elders of government. from political partisans. In the 2000 were accustomed to getting. g Millennials embrace multiple modes election, half the statements came from g A majority of Americans seek out a of self-expression. Three-quarters have journalists and only about one-third full news story after hearing about created a profile on a social networking from partisans. an event or issue from friends and site, and one-in-five has posted a video g Obama’s team produced about 25 times family. Among 18 to 29-year-olds, of themselves online. But their look-at-me more Twitter posts than the Romney the percentage that primarily relies tendencies are not without limits. Most campaign. But on blogs, Twitter and on social media for this kind of news Millennials have placed privacy boundaries Facebook, users were consistently already reaches nearly a quarter. on their social media profiles.

54 “The single biggest problem with communication is the illusion that it has taken place” George Bernard Shaw RESEARCH: 6TH ANNUAL BRUNSWICK GROUP M&A SURVEY GLOBAL M&A OUTLOOK: LET’S MAKE A DEAL by steven lipin, brunswick, new york and david ashton, brunswick, hong kong

Dealmakers predict a mergers and acquisitions surge do you expect global m&a Key: this year, propelled by greater confidence among CEOs to increase, decrease, or Response from and board members, some signs of an improving economy, stay the same in 2013? US advisers and cheaper, more abundant debt. The results of the 6th Annual Brunswick Group M&A Response from China advisers Survey of bankers and their deal advisers show a Increase 82% significant rise in confidence that there will be more deals Stay the same 15% Response from this year globally. M&A volume started off strong in the first EU advisers quarter but softened in the second quarter, dragged down Decrease 3% by a slowdown in the US and Europe. Still, respondents to In some charts, percentages do not the Brunswick survey expect that deal activity over the total 100 due to multiple course of the year will be higher. response options Dealmaking optimism is at its highest since Brunswick began its annual survey in 2007. There is near unanimity (97 percent) among North American advisers that the pace of dealmaking in North America will be brisker than last year. A large majority (82 percent) also expects higher Increase 74% volume globally. Stay the same 22% Dealmakers in Europe and Greater China are almost Decrease 4% as bullish, with 88 percent and 74 percent, respectively, expecting global M&A volume to rise. Confidence among CEOs and their boards will be key to boosting M&A volume, according to most North America- and Europe-based advisers. In China, advisers see a growing appetite from Chinese State Owned Enterprises for foreign expansion. Other key trends to watch this year include a comeback Increase 88% for leveraged buyouts, exemplified by the debt-fueled Stay the same 12% competition for IT company Dell (valued at about $25bn), Decrease 0% more spinoffs and divestitures in North America, and more all-cash deals. The Brunswick survey polled more than 100 top M&A bankers and lawyers from North America, Greater China, and – for the first time – Europe, on their views about the current deal landscape and trends.

North America the consumer space, including the acquisition of H.J. Heinz In the first quarter, North American deal volume was by Berkshire Hathaway and 3G Capital. First-quarter deal up almost 89 percent from last year, at just under activity in the consumer sector was $38bn, compared to $270bn. Cheap debt and a slow economic recovery just $8.4bn in Q1 2012. Corporate spinoffs and divestitures continue to encourage companies to pursue growth last year – such as Kraft’s $26bn split (into snacks and through takeovers. groceries), and Pfizer’s animal health unit spinoff – are The consumer goods sector is especially ripe for expected to increase in 2013, the survey found. Most deals consolidation. The year began with several “mega deals” in in the sector are expected to remain domestic affairs.

56 The 6th Annual Brunswick Group M&A Survey polled more than 100 top bankers and their deal advisers in the US, Greater China and Europe about their expectations for deal trends, opportunities, and challenges in 2013. Results for the cross-border survey were released just before the annual Tulane University Law School Corporate Law Institute, the leading M&A conference in the US.

North American advisers expect foreign acquirers to where do you anticipate mostly come from Asia, although the overall expectation of foreign acquirers foreign acquisitions – from Asia and elsewhere – has to come from in 2013? cooled from last year.

Greater China Asia 61%

M&A in Greater China last year was 4.7 percent higher by Europe 23% value than the previous year, at $145bn. Growth this year Latin America 11% should be at an even faster pace, the survey found. A large majority of Greater China advisers polled (77 percent) Australasia 5% expect foreign expansion to be key. Chinese acquisitions of foreign companies fell last year by 2.4 percent after a record 2011. But after a change of government in 2012, deal advisers expect that greater certainty and stability will encourage State Owned Enterprises and private Chinese companies to do more deals. The Chinese administration’s long-standing “Go Global” strategy, North America 58% initiated in the late 1990s to encourage Chinese companies Australasia 19% to make investments abroad, is expected to continue to Europe 12% gather momentum in the coming years. Middle East 8% Europe Latin America 4% This year, for the first time, the Brunswick survey polled M&A advisers in Europe. Though Europe-based advisers expect deal activity to pick up, they were less upbeat than their American and Chinese counterparts. Still, 61 percent predict an increase in M&A activity in their home region, compared with 97 percent and 67 percent in America and China, respectively. A majority of Europe-based advisers expect this uptick North America 61% in activity to be driven by foreign companies making Asia 39% acquisitions in Europe, predominantly from the US, followed by Asia. While the ongoing debt crisis in the eurozone countries may have suppressed dealmakers’ appetites in 2012, there is now optimism among deal advisers that CEO and board member confidence, coupled with the availability of credit and low interest rates, could provide the right conditions for a rebound in 2013.

Steven Lipin is Senior Partner for Brunswick’s US practice. further survey details follow David Ashton is an Associate Partner in Brunswick’s Hong Kong on next pages office and runs its opinion research business in Asia. Beau Allen and Christopher Beattie in Brunswick’s New York office contributed to this article.

Brunswick Issue seven 57 Review Summer 2013 what are the key factors that will drive m&a in 2013?

North America g A large majority of North American advisers (89 percent) expect mega deals and leveraged private equity buyouts CEO / Board confidence 64% to increase in 2013. Improving economy 53% g More than twice as many advisers expect deals to be all- cash as opposed to a mixture of cash and stock (69 Greater availability of credit and lower interest rates 45% percent versus 27 percent, respectively). Shareholder activism / Pressure from investors 44% g There is cause for “cautious optimism” for higher M&A volume, according to Citigroup Global M&A Co-Head Mark More cash on balance sheets 36% Shafir, keynote speaker at the Tulane conference. But reasons for caution include political gridlock in the US Equity market rebound in the US 30% and a risk that the strong bond market might collapse.

Cost-cutting / Synergies 6%

Greater China g Advisers in China see State Owned Enterprises (SOEs) Growing appetite among Chinese expanding internationally, with 69 percent identifying their SOEs for outward expansion 69% growing appetite as a factor increasing M&A in 2013. Opportunities in struggling 58% Western economies g Emerging markets will continue to be one of the major Growing appetite among privately-owned 38% themes in M&A, with China topping the list of countries Chinese companies for outward expansion where a fast-developing economy is driving deals, A more favorable political environment following 31% according to Citigroup’s Shafir. The risk of a slowdown in elections / Leadership transition in the US and China China is one of Shafir’s caveats for a busier M&A market Greater availability of credit 27% in 2013. and lower interest rates g While a majority of advisers in China still see Improving economy 19% opportunities in Western economies as a key driver of

foreign expansion, this view has cooled considerably from More cash on balance sheets 15% the previous year – to 58 percent from 72 percent. Shareholder activism / Pressure from investors 15%

Europe

Deal advisers in Europe – included in the survey for the g CEO / Board confidence 72% first time – were optimistic about increased regional M&A activity in 2013, with 61 percent expecting more Greater availability of credit deals. But even more – 88 percent – expect more M&A and lower interest rates 56%

deals globally. Cost-cutting / Synergies 50% g A majority (59 percent) of Europe-based advisers expect More cash on balance sheets acquisitions by foreign companies to drive deals in the 39% region, a sharp contrast with the US and China, where Shareholder activism / Pressure from investors 18 percent and zero, respectively, of those surveyed 28% expect foreign buyers to drive deals. Improving economy 17% g The possibility that the eurozone doldrums will linger could hold back deal activity, says Citigroup’s Shafir. Further development of the euro crisis 6%

58 what sector do you think is most ripe for consolidation in 2013?

North America g North American advisers see the consumer goods sector as likely to be most active in M&A – 31 percent Consumer goods / Retail 31% in the latest survey, up from 10 percent in 2011. Technology / Telecoms 22% g After several years near the top, healthcare dropped Energy out of the top three, with only 14 percent of advisers 15% seeing it as likely to be very busy in 2013, down from Healthcare 14% 21 percent in 2011. Financial services 10% g Domestic strategic deals are expected to dominate M&A generally, with 71 percent of respondents picking this Industry / Engineering 5% category. For foreign acquisitions, 61 percent expect buyers to be Asian, down from 78 percent in 2012. Metals / Mining 2%

Greater China

The largest percentage of Chinese advisers expect the g Manufacturing 20% manufacturing and technology sectors will be the busiest in 2013, though consumer goods/retail is not far behind. Technology 20% A large majority of deal advisers expect the most g  Consumer goods / Retail 16% common type of deal to be Chinese companies pursuing foreign opportunities, with 77 percent opting for this Energy 8% category compared with just 12 percent expecting domestic strategic buyers to drive the market in 2013. Raw / Industrial materials 8% g Deal advisers see much less appetite from privately- Transportation 8% owned Chinese companies for outward expansion, with 38 percent expecting this to be a deal driver compared Property 4% with 84 percent in 2012. Financial services 4%

Logistics 4%

Europe

A combination of the aftereffects of the banking crisis g Financial Services 24% and European Union rules for a single market are expected to make financial services one of the busiest Energy 24% sectors for M&A. For similar reasons, energy is seeing consolidation. Industry / Engineering 18% g Europe-based advisers expect most foreign acquirers to Automotive 12% come from North America, though a significant minority see them coming from Asia: 61 percent versus 39 Healthcare 6% percent, respectively. Technology / Telecoms 6% g A preponderance of advisers surveyed expect deals in Europe to be all-cash (78 percent), indicating the Utilities 6% relatively cheap debt available compared to the Metals / Mining 6% valuations of company shares.

In some charts, percentages do not total 100 due to multiple response options

Brunswick Issue seven 59 Review Summer 2013 VERA BRANDIMARTE

Vera Brandimarte was part of the team that launched Valor Econômico in May 2000, becoming Diretora de Redação (Editor-in- Chief) three years later. Previously, Brandimarte worked for Gazeta Mercantil, Brazil’s traditional business newspaper, which first printed in 1920 and shut in 2009; then Jornal do Brasil and O Estado de S. Paulo, before joining the Valor Econômico start-up project.

VALOR ECONÔMICO

Valor Econômico, Brazil’s largest and most influential business newspaper, is a joint venture between media conglomerates Organizações Globo and Grupo Folha. It has content-sharing partnerships with The Wall Street Journal and the Financial Times, as well as an online English news service called Valor International, launched in January 2013. BRAZIL AFTER THE HYPE After riding high on the BRICs story, Brazil is slowly but surely working out its own development narrative, Vera Brandimarte, Editor-in-Chief of the country’s most influential business newspaper tells Brunswick’s Ana Paula Pessoa and Thomas Kamm

he oft-told joke about Brazil was, “It is the country of In 2010, the country was still the darling of international the future and always will be.” After nearly two decades investors, with the economy growing at a China-like pace of relative economic stability, and with the country set of 7.5 percent a year, fueled by credit and a rising middle class, as to host both the 2014 soccer World Cup and the 2016 40m people were lifted out of poverty in the space of a decade. But OlympicT Games, it seemed there were good reasons to expect South after slowing to 2.7 percent in 2011, Brazil’s economy last year America’s largest economy to bounce back strongly from the world sputtered along at a paltry 0.9 percent growth rate. financial crisis and economic downturn. After all, unemployment Yes, Brazil had been riding a commodity boom and slower growth has remained low and President Dilma Rousseff, who succeeded was partly caused by the global economic slowdown, but behind the the wildly popular Luiz Inácio Lula da Silva three years ago, still see-saw performance there also lurked some befuddling Brazilian rides high in the opinion polls. idiosyncrasies that affected the country’s image with investors. The main stock market index, Bovespa, had recovered to about “Today, the government’s greatest challenge is communication,” 55,000 by May 2013, up from a trough below 30,000 at the end of Brandimarte says, “and that fuels the negative image abroad.” 2008; but that was still well below the peak of nearly 73,000 in Indeed, the Brazilian economic model mixes a vibrant private spring 2008. For sure, some of Brazil’s private sector companies sector – epitomized by companies such as aircraft-maker Embraer, were hit hard by the downturn, just as many others were around and the meatpacker JBS – with state intervention through the world. But the real drag on the index was the listed government- behemoths such as Petróleo Brasileiro (commonly known as controlled companies that are the largest components in the Petrobras), the mining giant Vale, and state development bank Bovespa index. BNDES, which itself has stakes in many Brazilian companies. “Among the most significant factors that have led to market This mixed and sometimes muddled approach extends to the grumblings were investor losses in the most lucrative Brazilian broad economic policy choices in front of President Rousseff, companies: state-run companies such as oil and gas giant Petrobras who faces an election herself next year. Her government is torn and electric utilities,” says Vera Brandimarte, Editor-in-Chief of between stepping on the accelerator to foster growth (with the risk Brazil’s leading business daily, Valor Econômico, and a long-time of reigniting inflation, which is running at an annualized rate of chronicler of the country’s economic ups and downs. about 6.6 percent) and applying the brakes by raising interest The reversal for these companies was rooted in a history of rates (which could lead to an inflow of capital that could cause the government involvement in the energy sector, whereby efforts to currency to rise, further harming Brazil’s competitiveness). curb inflation and manage energy infrastructure have often Key to Brazil’s future are its oil and gas reserves, located in a resulted in erratic pricing policies, hampering the companies’ hard-to-reach “sub-salt” offshore region about the size of New York ability to invest. These problems run counter to a more positive state, which could yield between 35bn and 100bn barrels, according Brazil narrative, Brandimarte says. to the latest estimates.

Brunswick Issue seven 61 Review Summer 2013 The government has created a sovereign wealth fund and has issued a veto that was defeated. This waste of political energy pledged to use the proceeds in a similar way to Norway, spreading projected the image of a government that has no solid support.” the wealth by using the oil windfall for general development, such For more than a decade, Brazil’s story has been linked with that as on education and infrastructure building. But its management of Russia, India, and China, which together formed the “BRICs,” a of the state oil company has often seemed clumsy. group of large, fast-growing economies that Goldman Sachs had This is illustrated by the recent history of Petrobras, which has identified as key for investors looking for growth this century. drawn criticism in the international business press, as Brandimarte But after the 2008 crisis, that story has faded somewhat, especially points out. Having peaked above $72 in for Brazil. May 2008, Petrobras’ New York-listed Brandimarte argues that shares had fallen to just below $15 by “the government’s greatest infrastructure projects are now March 2013. The decline is due largely to required to get the economy going government policies, which required challenge is communication again, but she sees problems because of Petrobras – the country’s largest refiner ... almost everything they Brazil’s history of debt and military and marketer of petroleum products – to do seems disorganized” control: “Brazil’s situation is quite sell fuel at below-market prices, even fuel different from China’s, [whose] growth it had to import. That and a weakening was sustained by investment of currency meant that Petrobras’ 2012 national savings in infrastructure profit was the lowest since 2004, at a time when it needed to spend projects. In Brazil, the government has mostly used national more than Exxon on oil development projects. savings to pay high interest rates to investors because of the No wonder, then, that Petrobras’ debt stood at nearly 3.5 times debt, and little infrastructure investment has been carried out since earnings at the end of last year and it still has enormous capital the 1970s, when the [military-led] governments had their own spending ahead. As Charles Roth wrote in The Wall Street Journal companies to conduct these projects. Today, neither the private in April: “Compounding the cost for Petrobras is the government’s sector nor the government have the necessary infrastructure to demand that the company buy much of its equipment from local create these projects.” suppliers. Like the fuel-price subsidies, this prioritizes economic But Brazil has a lot to be proud of in its transformation from policy over Petrobras’s profits. That is par for the course with a hyperinflation basket case to dynamic growth story. “Brazil is a national oil company. But investors buying the stock should realize great democracy, and great democracies always take two steps that they aren’t merely betting on Petrobras developing its huge resources on time and on budget. They are also implicitly wagering on Brazil’s economic and industrial BRAZIL’S ECONOMIC GROWTH TAKES OFF … development concerns and political swings.” GDP per capita vs. inflation

There was a similarly damaging development in the $16,000 3,000% power sector. Last year, Rousseff’s government enacted legislation to cut power rates by renegotiating the terms 14,000 2,500 of electricity concessions. Companies that declined to 12,000 accept sharply-lower government-mandated rates had 2,000 the option of giving up their concessions in exchange 10,000 for compensation. It was an unattractive dilemma that left some companies with languishing share prices. 8,000 1,500

“Everything was poorly explained. The [electricity 6,000 concession] process was perceived as a breach of 1,000 contract and that simply was not true,” says 4,000 Brandimarte. “Almost everything they do seems 500 2,000 disorganized. For example, during the negotiations on

the distribution of oil royalties among the states, there GDP per capita 0 0 Inflation were political efforts in Congress that attempted to pass 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 a law to cluster several state governments together. That Inflation averaged 6.5 percent from 1996 through 2012 Source: IMF plan was abandoned suddenly. The President then

62 forward and one step back,” Brandimarte says. One aspect of this is they are learning that. However, some still have double standards. Brazil’s vibrant business press, still fairly rare in emerging They believe that the investor relations team should communicate economies in Latin America and elsewhere. in a transparent way with institutional investors, but not with Where does the business press fit into this next phase smaller, retail investors. Similarly, a company might make of development for Brazil? “Traditionally, the macroeconomic significant revelations to its international investors, while at the story was such a big part of Brazil’s story – inflation hitting 40 same time saying the opposite here in Brazil. What is said abroad percent a week, and so on – that the general press would cover the quickly arrives in Brazil through the international newswires, and big economic stories as thoroughly as the business press,” contradictions appear immediately.” Brandimarte says. “But there are a lot of regional business stories, Brazil has its own quirks and rhythm: “Everything that so that is a huge opportunity for the business press to offer happens here requires a grand bargain [between central and additional content. Plus, with all this volume of information regional governments and business]. Nothing happens fast in this circulating on the internet and on social networks, the business country,” Brandimarte says. press becomes the point of reference for people to determine what But for all that, Brazil is among the countries that still holds the is true and what is rumor.” most promise for growth and that remains its strongest message, The Brazilian business press has also managed to keep its she says. “Where are the opportunities now? In Europe? No. Here? independence, she adds: “The government often criticizes the Yes. Brazil requires much to be done, and compared to other BRICs media, but there is no record of interference. It doesn’t, for example, – despite its bureaucracy and everything – the rules are stable and use its huge official advertising budget – very important to the there is a strong consumer market. So, I guess everything will be Brazilian press – to manipulate the media.” sorted out, in Brazil’s way. Slowly.” What about the private sector’s relationship with the press? “Some listed companies are still in the Stone Age in terms of Ana Paula Pessoa is a Partner in Brunswick’s São Paulo office. Previously she worked at Globo, the largest media group in Brazil, including 10 years as CFO communications,” Brandimarte says. “If they don’t like an article, for their newspapers. they will stop advertising in that newspaper. But that doesn’t Thomas Kamm is a Brunswick Partner in São Paulo and specializes in corporate really work any more. It is an old-fashioned way of behaving, and positioning and financial communications. He was formerly a journalist with harks back to the early days of business journalism when some The Wall Street Journal and Vice-President for Communications and Corporate Affairs at PPR, the French luxury and retail group. newspapers were struggling financially.” Adriana Prado, an Executive in Brunswick’s São Paulo office, also contributed She adds, “Companies today have to be accountable to society, to this article.

… THE BENEFITS ARE SPREAD MORE EVENLY… … AND DEALMAKING HAS INCREASED

Poverty level vs. income inequality measure Number and value of transactions

45% 0.62 1,000 $120bn

40 0.60 100 800 35 0.58 80 600 30 0.56 60 25 0.54 400 40 20 0.52 200 20

Population below poverty line 0 0 coefficient*Gini 1990 1995 2000 2005 2010

Number of transactions of Number 0 0 transactions of Value *The Gini coefficient measures equality/inequality of distribution, 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 where zero is perfect equality and 1 is maximum inequality. Here, it measures distribution of Brazilian incomes Source: The Economist Sources: Thomson Financial, BM&F Bovespa

Brunswick Issue seven 63 Review Summer 2013 WHERE KNOWLEDGE IS FREE

Neil MacGregor, Director of the British Museum and creator of the widely acclaimed series, A History of the World in 100 Objects, tells Brunswick’s David Yelland about running the “lending library of the world”

More than two centuries before the internet, the founders of the British Museum offered citizens free access to information from the entire world, in a forum free from political control. The museum has remained a catalyst for new thinking, rooted in the power of the object. Under Neil MacGregor, who has been director since 2002, the museum has now embraced another role: as the “lending library of the world,” creating partnerships across the globe. free access for all “The point of the British Museum was to put the whole world in one place. It has never been about Britain, despite being the first public institution to be called British,” says MacGregor. “From the beginning it aimed at universality, not only by representing the whole world in the collections but also by being freely available to ‘all studious and curious persons native and foreign.’” MacGregor sees the museum as one of the surviving expressions of an 18th century optimism, which he describes as “a view that if humanity could look at itself, it would understand itself and peace and happiness would break out.” Global commerce was a key motivation in the creation of the first national museum in the world, says MacGregor. “Why does a parliament at that moment create a free museum and library? Naturally, this is connected with the fact that London was trading with the world. In order to trade effectively, we needed to understand the world. What concerned them was allowing the citizen free access to global information,” he says. “Today, this is equivalent to saying that we need proper broadband access and an internet-competent public to compete in the world. The government believed it was in the national interest to have this kind of knowledge.” What was new and radical was that this was not a royal collection but a civic institution. “Elsewhere in Europe, there were princely collections or the Vatican Museums, which were more or less open to the public. In the British Museum you find for the first time a state

buying a collection for its citizens rather than expropriating a royal / eyevine / Redux Times York The New / Testa Andrew Photograph:

64 images of gods from different cultures, so comparative religion was built into collecting from the very beginning and that, of course, is a radical area.” Meanwhile, the study of geology was transforming our understanding of time, and therefore challenging the notion of authority in scriptures. “I think we have always believed in the exchange of ideas and the importance of presenting views without endorsement,” says MacGregor. He reflects on the museum’s illustrious history of accommodating radical voices: “We have Karl Marx, and later John Lennon, applying for their reader’s tickets. London became the place “we do not seek to create where political dissidents came for asylum in the mid-19th century. outposts, rather to build And the library of the British Museum became the place where the partnerships” politics of the 19th century were written. It is a necessary part of a political process.” the power of objects In MacGregor’s BBC Radio 4 series, A History of the World in 100 Objects, he took pieces from the British Museum and told their story in a larger context. The power of these objects comes from what MacGregor calls “uncomfortable truths.” One of his favorite examples is a group of 16th century artefacts known as the Benin Bronzes (in fact made from brass) from Nigeria. one. The British Museum is an ‘open university,’ established when When the bronzes arrived at the museum and could be properly London did not have a university. We might say that this was the studied in the late 1920s, “there became no question that western beginning of a knowledge economy.” Africa had civilizations and material culture that were at the same The museum was founded in 1753 on the bequest of a vast level as the highest of Renaissance Europe or ancient China at collection of objects by Sir Hans Sloane, an Irish doctor and friend to that time. And a whole set of prejudiced assumptions had to collapse Isaac Newton and George Frederic Handel. Sloane had used his because of that. Such objects overturn the very basis on which their considerable fortune to build an impressive library and collection from acquisition was made,” he says. all around the world. “It was taking what was essentially a private In today’s digital era, when information can be so easily distorted, collection and saying: ‘this is the private collection of everybody.’” objects continue to tell truths that are often inconvenient. “And that In acquiring Sloane’s collection, the politicians showed that they of course is the point – that these objects can’t be falsified and the understood the value of knowledge and information. more you know about them the more they challenge the neat categories we want to have,” says MacGregor. “As the museum independence of mind grows and as new things arrive, new hypotheses have to come.” Few The museum’s founders made the far-sighted decision that objects have challenged categorization as effectively as the Cyrus government must not be able to control the organization that provides Cylinder which the museum has now lent to both Iran and the US. information. Instead of having the museum run by politicians, they (See page 67.) created the trustee system. At the time, Members of Parliament had to belong to the Church of England, but the British Museum trustees lending library of the world very quickly included Catholics and non-conformist Christians. Objects present a multi-faced narrative that carry with them ideas “It is not just the first museum trust in the world, it is also the first beyond the culture they represent. They therefore have a significant parliamentary trust. That choice had one hugely important role to play in international cultural relations. “The British Museum consequence: if it had been run as a department of state, only lends far more than any other major museum. We are becoming the Anglicans would have been able to hold office,” thus narrowing its lending library of the world,” says MacGregor. “We do not seek to intellectual scope, MacGregor says. “Sloane’s collection included create outposts, but rather to build partnerships. We have a long- running partnership with the Shanghai Museum, for example. If the public in China are to see artefacts from Egypt, Mesopotamia, Greece, these have to come from somewhere else. This is part of Neil MacGregor has been Director of the British Museum since 2002. He read languages at Oxford, philosophy at the École Normale Supérieure becoming citizens of the world, in the same way that Britain did in the in Paris and law at the University of Edinburgh. He studied 17th- and 18th century. Our partnerships also involve training, the exchange 19th-century art at the Courtauld Institute of Art in London and later of curators and exhibitions, and joint collecting so that this becomes, lectured there. He sits on the boards of the UK’s National Theatre and the in a very real sense, a resource for the world.” Hermitage Museum in St. Petersburg. In 1981 he became Editor of the arts periodical, The Burlington Magazine, and in 1987 became Director This new approach comes with its own set of challenges. In 2004, of London’s National Gallery. MacGregor recounts, the museum put on an exhibition to celebrate

Brunswick Issue seven 65 Review Summer 2013 the centenary of the National Museum in Khartoum, Sudan. “It now, even if it means working with colleagues from regimes of which we demonstrated that for thousands of years there has been a big disapprove, or which are behaving badly. To work with those colleagues divide between north and south Sudan and effectively you have a on a scientific basis is not to condone that activity. There obviously is a geopolitical fault line somewhere south of Khartoum,” he says. point at which you have to stop. But I think you should put that With controversy raging over atrocities in Darfur, in western boundary as far away as possible to keep the exchange going. Iran has Sudan, a month before the exhibition, “We had to decide whether we been a very good case in point.” were actually willing to put on an exhibition identified with the It is important to encourage the exchange of ideas and opinions government,” MacGregor says. “But we decided that it was more so we can understand, as MacGregor says, “The people with whom important than ever for the public here to try to understand the we most disagree,” and to “hear why the world looks to them the way country’s long history.” The special exhibition had no financial it does. Our job is to promote an understanding. It is a constant and sponsor and the museum faced having to charge for admission. “But difficult balancing act that you are going to get wrong, but you have the trustees, I think very admirably, decided that we must take off got to try.” the entrance charge and simply find the funds to do it, and instead ask visitors to make a contribution to Save The Children and Oxfam’s David Yelland is a Partner in Brunswick’s London office. Additional reporting by David Lasserson of Brunswick Arts. work in Darfur. That was the right decision.” Decisions such as this are not uncommon, says MacGregor. “One of the great 18th century ideals was the notion of the republic of letters, the community of inquiry. This was nothing to do with politics or For more than a decade, the British Museum has been a client of Brunswick Arts, an international communications consultancy dedicated rulers, but simply people of good faith inquiring and working together. to managing the reputation and interests of arts, cultural and charitable I think the museum has to fight very hard to preserve that community organizations around the world.

china, 1960s chairman mao pin An estimated 5bn pins were made during China’s Cultural Revolution (1966-1976). They were worn as an expression of loyalty to Chairman Mao and the Communist Party of China and almost every Chinese person wore one, from party leaders to children.

The striking imagery and powerful language of the Cultural Revolution permeated every aspect of life in China during this period and these button badges or pins celebrate that.

This pin shows Mao’s portrait on a red globe above a lighthouse shining out over a stormy sea. The inscription on the back reads “Mao Zedong: Thought is the lighthouse for world revolution.”

Neil MacGregor: “We wanted to look at Mao, the phenomenon and iconography, to see the changing attitudes towards Mao over time. We’ve got a wonderful collection of buttons. More contemporary ones even feature Mao urging you to buy shares on the stock market. They allow you to see how China has transformed while maintaining the language of its past.”

66 babylon, southern iraq, about 539-530 bc a declaration of good kingship cyrus cylinder The British Museum has in its collection the Cyrus Cylinder, one of the cylinder has become especially important as the country seeks to the most famous objects to have survived from the ancient world. present itself as having the greatest freedom of religious expression Often referred to as the first charter of human rights, it is valued as a in the Middle East. It has synagogues and churches and this has symbol of tolerance and respect for different peoples and different become a subversive document in many different ways. faiths. In 2010, the cylinder was loaned to Iran, a country formerly What I find fascinating about this object is that it undermines ruled by Cyrus, where it was enthusiastically received. assumptions and raises controversy in all kinds of areas. For many This clay cylinder is inscribed in Babylonian cuneiform with an account people it comes as a surprise that the Persians, whom we know by Cyrus, King of Persia (559-530 BC) of his conquest of Babylon and through the Greeks and whom many of us had been taught to regard capture of Nabonidus, the last Babylonian king. Under Cyrus, the as barbarians, actually had an extremely sophisticated notion of Persian empire became the largest kingdom the world had ever seen, freedoms and differences. stretching across the Middle East and unifying many tribes, languages When we lent the cylinder to Tehran it was seen by nearly 1m people and cultures. The king’s declaration, placed at the base of a building and soon became the focus of an extraordinary debate about the in ancient Babylon in what is now modern Iraq, was found in 1878 true nature of the Iranian identity, causing people to question during a British Museum excavation. whether the essential character of Iran and its history was Islamic Neil MacGregor: “The cylinder shows how the Persians ran their or pre-Islamic. After the exhibition, the Iranians returned it exactly empire. When they conquered Babylon they allowed the captive as promised without any difficulty at all, but the country was still peoples to go back to their homes and, most importantly, allowed the left with controversy, presumably because it left behind a very restoration of all the different religions. Freedom of peoples and 18th century question about the relationship between faith and the freedom of religion is what this document is. In modern Iran, the state.”

the cyrus cylinder is touring the us in 2013

g The Metropolitan Museum of Art, New York — June 20-August 4 g Asian Art Museum, San Francisco — August 9-September 22 g J. Paul Getty Museum at the Getty Villa, Los Angeles — October 2-December 2

Brunswick Issue seven 67 Review Summer 2013 united kingdom, 1903 suffragette-defaced pennies The women’s suffrage movement in Britain grew in the early 20th century with increasing civil disobedience, rallies and demonstrations. These coins – minted in 1903 – were used as part of this campaign. Stamped by supporters with the slogan “votes for women,” they were put back into circulation to spread the message of the suffragettes.

At the time, defacing a coin was a serious criminal offence, and the perpetrators risked a prison sentence had they been caught. Defacing small change rather than a silver coin meant that it was less likely to be taken out of circulation by the banks and the message could have circulated for many years. The law giving women the same voting rights as men was passed in 1928.

grayson perry, british artist, 1960- from the exhibition “the tomb of the unknown craftsman” the rosetta vase Prize-winning contemporary artist Grayson Perry collaborated with the British Museum to create an exhibition where he chose 170 objects from its collection – made by unknown men and women throughout history – alongside 30 works of his own creation. Vases made by Perry, such as this, and covered in witty captions, were displayed alongside objects from the past 2m years of culture and civilization. Visitors were taken on a journey to his imaginary world, exploring themes connected with notions of craftsmanship and sacred journeys.

Grayson Perry: “The exhibition was a memorial to all the anonymous craftsmen that over the centuries have fashioned the man-made wonders of the world … The craftsman’s anonymity I find especially resonant in an age of the celebrity artist.”

The Rosetta Vase by Grayson Perry, courtesy the artist and Victoria Miro, London, © Grayson Perry, photograph © Stephen White. All other photographs: © Trustees of the British Museum www.britishmuseum.org

68 nigeria, edo peoples, 16th century benin bronzes: encounter with europeans These brass plaques show aspects of Benin court rituals in the 16th century, shortly after Europe’s first contact with West Africa. They also celebrate major historical events and convey representations associated with kingship.

The figure at the center of this plaque is the Oba – the king of Benin in Nigeria. Two attendants kneel beside him and in the background on either side are two tiny figures, identified as Portuguese traders, characterized by their long hair and European-style hats. The composition can be seen as depicting how the Oba and his officials manage and control European trade.

When these plaques were first seen in Europe in the late 1890s they astounded art critics who couldn’t believe that such technically accomplished sculptures were created by African artists.

polynesia, 18th century hawaiian feather helmet Explorer Captain James Cook went on a voyage to find the passage connecting the Atlantic and Pacific oceans but instead he and his crew explored the Pacific and landed in Hawaii. Upon arrival they were presented with gifts from the king, among them chieftains’ helmets – mahioles – rare and precious objects made of red and yellow feathers, including this one.

This object now stands as a vivid emblem of the kind of fatal misunderstandings that have featured throughout European contact with people across the globe.

Upon arrival, Cook was given these sacred items and treated like a chieftain with godly status. He and his men spent a month repairing their ship and participating in a local festival devoted to the season of peace. Shortly after they left, a storm forced them back to the island where the seasons had changed; it was now the season of war. Violence broke out and Cook was killed at the hands of the same people who gave him the helmet.

Feathers were associated with divinity and were the Hawaiian’s most valuable raw material. It is believed that nearly 200 people would have been dedicated to collecting and storing the materials and manufacturing these helmets, sometimes taking generations to produce the final product.

Brunswick Issue seven 69 Review Summer 2013 A CYBERSPACE ODYSSEY From live-streaming in outer space to fugitive-hunting on American streets, social media now dominates the public conversation. Mashable’s Pete Cashmore and Lance Ulanoff explore

interview by jesse comart, brunswick, new york

ashable has a wide brief, describing It was up to Ulanoff to provide some perspective: itself as “the largest source of news, “There is tremendous value in everybody becoming information, and resources for the foot soldiers in the quest to find the truth,” he told Connected Generation.” It has also CBS correspondent Tracy Smith. But, he added, builtM a large following since its inception in 2005 as a “At one point, I wrote, ‘I just wished I had a fact filter tech blog, with 25m unique visitors to the website each for Twitter.’” month and 10m social media followers. The success of Ulanoff’s comment contained an essential truth Mashable and its role as an arbiter of all things “social about the debate surrounding social media: yes, it is media” has often put founder/CEO Pete Cashmore and an important phenomenon and it is undoubtedly Editor-in-Chief Lance Ulanoff at the center of the swirl changing the way people get information and helping of endless commentary about the nature of media in to shape major events, especially in politics. But there this fast-changing era, constantly in demand for their is also a tendency for people to make overly confident views on what such-and-such a development means. assumptions about social media’s real value – This was amply demonstrated in the aftermath of whether optimistic or pessimistic. The true nature of the Boston Marathon bombings, when Ulanoff was its role is being played out in real time, which makes called upon to help explain the role that social media it all the more important to have intelligent voices played in the event, particularly in a long piece by CBS that can add value to the debate. News program 48 Hours. In this conversation with the Brunswick Review, The segment was at times hyperbolic about the Cashmore and Ulanoff bounce around some role of social media in catching the bombers with, for thoughts about social media’s emergence and how it example, Eugene O’Donnell, a professor at John Jay is evolving as an agent of change. College of Criminal Justice and a former New York cop and prosecutor, saying, “This is a watershed event Having started Mashable as a tech blog with a … validating the whole idea of social media. There consumer perspective, what was it that drove you to were a million sets of eyes looking for these two guys. segue into covering social media in a big way? This represents a whole new way of thinking.” But the Pete Cashmore: In 2007, we sat down and said, ‘You “crowd-sleuthing” segment also noted that mistakes know, this social media thing is just huge, and it clearly were made, including identifying perfectly innocent reflects what we love about technology, which is this people as potential suspects. democratizing force. It’s giving the tools to

70 everyone.’ … I think the big tipping point for Twitter smart about what you put was 2011, when we had the ‘Green Revolution,’ [the out there. We’re always on aftermath of the mass post-election protests in Iran, the side of, ‘This is common now recognized as ‘the first major world event sense, get out there and try broadcast worldwide almost entirely via social media,’ it.’ The problem is there are as The Atlantic put it]. That was the pivot point for some people who don’t use social media and it was a year when we started to their common sense. Then broaden, to say, ‘Okay, we get that Twitter and there are some companies that Facebook and all these things are vital tools.’ are so risk-averse, they don’t give their employees the tools to be foot What did that pivot point mean for Mashable? soldiers for their brands. Lance Ulanoff: You know what’s funny? We talked in the 1990s about ‘it takes a village’ [referencing the Entities in a position of authority – brands, African proverb and Hillary Clinton’s book]. And governments, and so on – used to be able to say, “You then, oh, it’s a global village. But now every event is a have to listen to me.” Now, it seems, everyone is being gathering of people together, talking about the same forced into a two-way communication. thing. Sometimes it is something as light as the Super Pete Cashmore: We’ve seen this affect the ‘social good’ Bowl. And sometimes it is as important as gun space especially. Now, there’s such a level of control. We’re just seeing the conversations happen transparency that you have to genuinely have a good at scale now. … Obviously, [political] campaigns moral center as a business in order to flourish. All that have been transformed by technology, by social talk around, ‘Well, we’re locally sourced,’ or, ‘We’re media. We’ve learned a lot about the power of data. environmental,’ or, ‘We’re community orientated,’ or, ‘We do a lot for charity,’ suddenly becomes a lot more You have said social media is low risk. Can you transparent. There’s no hiding. expand on that? Lance Ulanoff: Technology used to be seen as a Pete Cashmore: I meant in terms of dollars. You sit in part of commerce – you buy a gadget, you use it. But your office, you find something funny to do, and now it has expanded. We asked our audience if the people say, ‘Hey, that brand is funny. I feel a internet should be a human right and people all said, connection.’ You can put very small investment into ‘Yes’ – but that was a bit radical because, you know, hundreds of ideas and then see which idea takes off. broadband costs money to implement. It’s also quite ephemeral. So, even if your first ‘ Vine’ Pete Cashmore: It was one of those areas that [a short-video application] is boring, your second or people were very skeptical about, whether social third might be better. media would ever be something that would make a Lance Ulanoff: There is a low barrier to entry but difference. One of the biggest questions was, ‘We can the flipside is that there is some risk. You do have to be get people talking about stuff but how are they going

PETE CASHMORE Founder & CEO

Pete Cashmore founded Mashable in 2005 at the age organized Mashable’s Social Good Summit, partnering of 19 “in his bedroom” in Aberdeenshire, Scotland. with the United Nations Development Program In 2012, he made Time magazine’s “100 Most and the Bill & Melinda Gates Foundation. Influential People,” list being described as a “social The summit – “where big ideas meet new media news guru.” Time said of him, “Pete is fiercely intelligent to create innovative solutions” – was opened by Hillary and a tireless supporter of using social and digital Clinton and took place at 200 “meetups” across the platforms for good.” In September 2012, Cashmore world, from Beijing, China to Mogadishu, Somalia.

72 to open their wallets and send us money?’ I think the impressed, but then a lot of people who read point was missed about how important it is for us to Mashable are the digital people at bigger get people talking and understanding issues, and organizations. I think brands understand that feeling they could actually change stuff. The biggest social media is huge now; that it is a very low-risk problem for charity and giving efforts is, ‘I’m just a thing and can have huge returns down the line. person. What can I do?’ It’s this connectivity that When Twitter launched, people weren’t sure what it suddenly makes people decide, ‘Oh, well, if there’s a was. ‘Is it the new customer service phone line? Is it million other people doing this, then clearly I can PR?’ Turns out, it’s kind of all of the above ... Brands make an impact here.’ But as Lance says, the big story have gotten better and better at telling great stories. is about connectivity, how cheap phones, cheap We’ve seen more and more examples of brands connectivity, have completely changed the developing doing really great social media. Just last year, Red world. So, for health, there was a lot of talk about Bull dropped a guy from space. It’s not literally health apps for self-diagnosis. If you’re hundreds of about drinking soda, but they knew that live- miles from a doctor but you have the equivalent of a streaming this event would take off. Brands like Wikipedia for health, you can see what’s wrong with that have started to understand that social media you, you can self-diagnose, or you can have is really just what people are going to talk about, someone at least in the town who can what they’re going to relate to and be understand that stuff. inspired by. Lance Ulanoff: As people get What about the “attention better at doing this, what is deficit,” where we move from really fun and fascinating for long articles to blogs to us to cover is the varying Twitter to snapshot, Vines, degrees of their success and Pinterest. Are we moving their failures. Failures are big along a continuum, or is it learning tools. “SOME a pendulum? COMPANIES Pete Cashmore: The volume of Is technology changing the way ARE SO RISK- stuff is not going to fall, but you’re people engage with governments, AVERSE, THEY going to get more and more tools for or is it just a way of consuming news? DON’T GIVE it. We’ve seen the first phase in social Pete Cashmore: It has become so powerful THEIR filtering: ‘What has the biggest conversation around it, for politics because it is the ultimate democratic EMPLOYEES THE TOOLS what is the most interesting to the entire community?’ system of media. You have an opinion on something, TO BE FOOT A second phase is personalization. That’s to say, you can immediately voice it and see if others share SOLDIERS FOR ‘I can’t read everything on the web, but I’ve read the your opinion – and feel like your voice can make a THEIR BRANDS” stuff that is most key to me that I need to read right difference. That’s what’s crazy about it – your voice now.’ I think that’s a broader trend of socially relevant actually can make a difference. We’re always surprised filtering. And Twitter’s ‘Discover’ tab, which they by that: someone will tweet something, or be involved launched at the end of 2011, does that. The algorithms in a political event, or meet a candidate. The next day are getting more and more sophisticated. So, I think they’re on national television. more data is a good thing. It’s just that the data grew Lance Ulanoff: There are all these tools online. at a rate faster than the curation tools grew. A White House petition that can generate tens of thousands of signatures, sometimes in the space of You said politicians and campaigns are doing days. They went from 25,000 to 100,000 with the particularly well using social channels and “big ‘Death Star’ petition [See box, page 75]. The White data.” Do you think companies lag behind on this? House is very savvy about understanding that you Pete Cashmore: We’ve actually been pretty can’t simply say, ‘That’s stupid.’

Brunswick Issue seven 73 Review Summer 2013 Pete Cashmore: It shows a human face that says, Lance Ulanoff: You can see that some of the ‘Hey, this is funny, and we’re going to respond in the people in Congress get technology, and are fantastic same vein.’ and others not so much. I think the story is really Lance Ulanoff: Everybody loved it. And of course interesting outside the US. With dictatorships, in that became a big hit for us – we’re interested in particular, the way they control power, the way cultural icons. they maintain power, is through the control of Pete Cashmore: A lot of cultural phenomena come information. These democratizing tools you talk out of the web. So, it’s become very powerful as a about are allowing people on the ground to share cultural starting point. important information. It’s creating revolutions. It Lance Ulanoff: It’s your primary source of is changing things in Africa. It is changing things daily entertainment. Everything, from the big to the in China. That’s the really fascinating and important littlest things. story that we like to tell. They cannot use propaganda in the same way any more because there’s an On the democratizing power of technology and social undercurrent of information breaking through media, are the White House petitions – though a very that doesn’t align with what people are being told “NOW, PEOPLE GET NEWS NOT visible, interesting manifestation – an exception? It by the government. JUST FROM TV, doesn’t seem that US or European governments have NEWSPAPERS changed all that much in response to technology. Do you think that “media curation” is limiting what AND MAGAZINES, Pete Cashmore: Are you separating campaigning from people will read? BUT RANDOM governance? Because, clearly, campaigning has come Pete Cashmore: That happened with TV before, PLACES, SUCH to be dominated by social media. But WhiteHouse.gov right? If anything, TV has gone more that way. You AS FRIENDS, is incredibly powerful, too. For years they’ve had this have channels that are identifying explicitly with a ACQUAINTANCES Flickr feed where they show you almost behind the certain viewpoint. AND ORGANIZATIONS scenes what’s happening in the White House. That THAT ARE ALSO level of transparency is new. It is still controlled Radio, TV, newspapers and other media channels CURATING. transparency – they’re still deciding what they’re going have been segmented in terms of politics. But you’re EVERYBODY’S

to put out there on the official feeds. But it’s a level of now talking about a much broader trend? A CURATOR” ReservedRights All TM. & Ltd. ©Lucasfilm Photograph: transparency that we haven’t had before. The weekly Pete Cashmore: Yes. It is possible to just subscribe to address is now posted to YouTube and quite a lot of stuff that you agree with, because otherwise you could people take the initiative to go remix it and cut it up have a very stressful life where you’re just angry the and put music on it. If you want to autotune it to make whole time. By the same token, there have been studies more people watch the President’s address, then why that run counter to that. So, even very controversial, not? You’re taking something that would have been very ‘out there’ opinions have started to get more bland and making it entertaining and making politics airtime. You go on YouTube, you can find a conspiracy something that’s more accessible to more people. about anything.

LANCE ULANOFF Editor-in-Chief

Lance Ulanoff is a 25-year veteran of tech journalism, publisher, Ziff Davis. having “covered technology since PCs were the size Ulanoff has a BA in journalism from Hofstra of suitcases, ‘on line’ meant ‘waiting’ and CPU speeds University in New York, where he serves on the were measured in single-digit megahertz.” university’s Communication Advisory Board. He He joined Mashable in September 2011. makes frequent appearances on TV, and in his spare time Previously, he was Editor-in-Chief of PCMag.com draws cartoons. He tweets “all day long” and has more and Senior Vice-President of Content for digital than 50,000 followers.

74 the white house “The administration shares your desire for job creation and a strong national defense, strikes back but a Death Star isn’t on the horizon. Here In September 2011, the White House are a few reasons: launched a website that promised to The construction of the Death Star respond officially within 30 days to has been estimated to cost more than all petitions garnering at least 5,000 $850,000,000,000,000,000. We’re signatures. Only a month later, that working hard to reduce the deficit, threshold was raised to 25,000. In not expand it. December 2012, a petition to “Secure The Administration does not support resources and funding, and begin blowing up planets. construction of a Death Star” reached Why would we spend countless that threshold. taxpayer dollars on a Death Star with because he knows these domains are While some might have seen a reason to a fundamental flaw that can be exploited critical to our country’s future, and to lament “open government” initiatives, the by a one-man starship? ensuring the United States continues Obama administration saw an opportunity. However, look carefully ... and you’ll notice leading the world in doing big things.” Picking up on the Star Wars theme, something already floating in the sky – Finally, the White House urges the public the White House official response was that’s no Moon, it’s a Space Station!” titled, “This Isn’t the Petition Response to help “build the future” by pursuing a You’re Looking For.” It starts: Just in case anyone doubted that this career in STEM: science, technology, response had official sign-off, it points out engineering or math. “If you do pursue a that President Barack Obama is handy with career in a [STEM]-related field, the Force a light saber, linking to a photo on the will be with us!” It finishes with a Darth White House Flickr page – where he parries Vader quote: “Remember, the Death with the US Olympic fencing team. Given Star’s power to destroy a planet, or even that NASA’s Space Shuttle program came a whole star system, is insignificant to an end during Obama’s tenure, the next to the power of the Force.” response makes sure to point out that Two days later, the White House raised the “the President has held the first ever petition threshold to 100,000 signatures. White House science fairs and an Astronomy Night on the South Lawn Laura Dudley, Brunswick, New York Photograph: ©Lucasfilm Ltd. & TM. All Rights ReservedRights All TM. & Ltd. ©Lucasfilm Photograph:

Lance Ulanoff: Now, people get news not just from an opportunity to pursue it without any guidance – a TV, newspapers and magazines, but random places, kind of self-guided learning. I think that will actually such as friends, acquaintances and organizations that pay dividends for people like me. It’s one reason I think are also curating. Everybody’s a curator. But you these curation tools will need to stay good at the niche cannot assume that everybody you’re engaged with on stuff. I think people will get much, much better at very, social media shares your views. If you buy the New very niche things. In the early days, I would subscribe York Post every day, you know it is going to cover things to all the tech news sources – I just wanted to know in a certain way. But now people aren’t buying a lot of everything about tech. As Mashable and social media newspapers – maybe they are following the Post have evolved, you start to have an appreciation for online, but they’re also following 50, 100 other sources. politics, or fashion even. Culture is a big thing across all Pete Cashmore: Pursuing more niches grows these social networks. It’s an exposure to a broader expertise. The New York Times tech section, for example, number of things that you wouldn’t necessarily have is extremely good but is more about broad trends. But opted to learn about. But because your friends are talking you can become an expert in virtually any topic just by about it, you become more engaged with more things. following the output on those topics, whether it’s on Jesse Comart is an Associate in Brunswick’s New York office. He Twitter, an RSS, blogs. The access to specialized specializes in corporate reputation, brand positioning, stakeholder information is incredibly good. There’s much more of engagement and public affairs.

Brunswick Issue seven 75 Review Summer 2013 DIFFERENT TAKE A SECTION THAT FOCUSES ON CULTURE, HISTORY AND SOCIAL TRENDS

“I look at creativity as a download from God”

TROY CARTER

Troy Carter, who founded talent management company Atom Factory in 2010, describes his approach to the business as “disruptive.” In 2011, he co-founded Backplane, a Silicon Valley startup that “redefines social media by allowing celebrities and brands to connect with fans, foster community, and cultivate brand loyalty.” In 2012, he created A \ IDEA, a product development and branding agency, as well as AF Square, an angel fund and tech consultancy. As Lady Gaga’s manager, Carter helped cement the pop star’s formidable online presence by cultivating a “fans first” philosophy. He began his career in Philadelphia working for Will Smith and James Lassiter’s Overbrook Entertainment, joining Bad Boy Entertainment in 1995 where he worked with groundbreaking artists such as Notorious B.I.G.

76 TROY CARTER: TAMING THE FAME MONSTER Lady Gaga’s manager tells Brunswick’s David Sutphen about building social networks, the changing face of music and what brands can learn from Little Monsters

“What I love about what I do is that it’s a real meritocracy. “Technology isn’t a threat to the music business. In both music and tech, We’re going to see this people judge you by what convergence of technology you bring to the table. and media in a way that It’s not about hasn’t existed in the past” your age, your sex, or the color of your skin”

“The world

“Social networks were not built is in flux. So Pepsi, for real fan/artist relationships or real consumer/brand relationships. Coca-Cola or even Our bet is that the future of social is going to go in a direction of very Google could specific niche networks” be the next big music label” Photograph: © Kevin Mazur © Kevin Photograph:

Brunswick Issue seven 77 Review Summer 2013 “I speak to a lot of brands “We’re going from trying to figure out their social media strategy. Brands with 20m, a conversation 30m, 50m ‘likes’ on Facebook. about privacy But they really don’t see how to turn that into customer to one about satisfaction. How to turn it into a transaction. How to turn it into transparency” a long-lasting relationship”

“You’ve got to be completely “Now you can reach fans transparent. If you offer people directly – and it’s free. value in exchange for information You can give them a ton and you’re transparent in your use of free content so they can of that information, you build a trusted relationship. A lot of people experience the music in would then be willing to share that a unique way. We make information, especially if they it a complete and are under 25 years old” immersive experience”

“Gaga wore a bra “We understand with guns on it the audience. and it was a big story. And then it was gone. We understand It’s like a bee sting. the culture. It hurts in that moment and then it’s gone and We can add value you forget about it” in that space” Photograph: © Adam Fedderly Adam © Photograph:

78 “Gaga was at the

Sony screening of “Whether it’s Roe vs. Wade, The Social Network. or the Civil Rights Movement, or being against going to war, She came out of the I want to be next to artists that are on the front line theater, calls me and of that sort of change. Lady Gaga shot to fame in 2008 on the strength It’s not just about having of her debut studio album, The Fame. She has says, ‘I want to make gained worldwide recognition for her outré sense a pop song on the radio” of style in music, fashion, and performance. a social network Her third studio album, Born This Way, released in 2011, broke the iTunes record for fastest to reach No. 1 on release day. Gaga is one of most prolific for my fans’” pop stars online – at last count, 2.1bn combined views of her videos online, 57m “likes” on Facebook, and 37m “followers” on Twitter. She is also a global activist and philanthropist, having been an outspoken supporter of many important issues including LGBT rights, HIV/AIDS “I go to dinner with friends awareness, body image issues, and youth in Silicon Valley and they tell empowerment. In 2011, she launched the Born This Way Foundation, backed by Harvard University me how many billions of people “The first album that I bought and the MacArthur Foundation, to promote they are reaching – billions as a kid with my own money was acceptance and fight bullying. Last year, with Troy Carter, she launched her social network, of page views. Then you look Eric B. is President, where they were LittleMonsters.com at SoundScan on Wednesday wearing custom Gucci outfits. Imagine morning and the top album if the next day I went back to that sold maybe 125,000 – if it’s album, the outfit was changed, or if I could buy the outfit right there. Christmas. Our metric And it could be updated throughout of success has to change. the entire album cycle?” Our ideas of scale have to change. The ways we reach consumers have to change” LittleMonsters.com was the launch project of startup Backplane, which Troy Carter co- founded. The website allows users to chat about fan interests, as well as issues such as bullying and LGBT. It is also a vehicle to promote Gaga’s Artpop album, which is being launched as an app. “Companies When assessing the beta site last year, Mashable “How do I learn from quoted Backplane CEO and co-founder Matt what has been built before? Michelsen saying the company’s core mission is, that rest on their last “To unite people around interests, affinities and How do I learn from other movements.” Reviewing Gaga’s network after it artists’ mistakes? idea, they’re dead. was opened to the wider public last summer, How do I build bigger? The Huffington Post commented: “The look and Companies that had feel of Gaga’s site are familiar, with a top nav A lot of the decisions I make bar similar to Google+, a Pinterest-like layout and Facebook-esque ‘like’ buttons peppered are based on thinking about a big hit this year and throughout the site for users to express their the kids that are coming approval of posts and fellow Monsters.” behind me. How do I pass think they’re going

lessons on to them the way to ride that hit, David Sutphen is a Partner and Head of Brunswick’s things were passed on to me?” Washington, DC office, advising corporations and they’re dead” nonprofits on strategic communications, reputational and public affairs matters, with a focus on media,

Photograph: © Adam Fedderly Adam © Photograph: technology, telecommunications and diversity.

Brunswick Issue seven 79 Review Summer 2013 The American media could not get enough of the barbed, eloquent Englishman, who was both revered and reviled for his brash new ideas on government economic intervention. WINNING THE Keynes had assaulted the intellectual orthodoxy of the economics profession the way that Einstein had done with physics two decades earlier. ARGUMENT, Leading the American side was senior Treasury official and economist Harry Dexter White, a brash, dogged technocrat raised in working-class Boston by Lithuanian LOSING THE DEAL Jewish immigrants. The colorful and nationalist Chicago Tribune captioned At the Bretton Woods talks that shaped the post-Second Keynes’s photo with the words, “The Englishman Who Rules World War financial world, British economist John America,” and groaned that he “overshadow[ed] all other figures” at the conference. Harry White the paper mocked as Maynard Keynes was charged with securing terms being among Keynes’s “ardent admirers and disciples.” For his part, White bristled at the suggestion that he was a mere that best suited his country. Economist and author American echo chamber for Keynes’s newfangled ideas, Benn Steil argues in his recent book, The Battle conceding to the press only that “[a]ny economist who is not acquainted with his work is a dodo.” of Bretton Woods, that while Keynes was the most Keynes was determined to apply the key insight of his brilliant economist of his era, he fell short when it General Theory – that the very existence of money at the heart of the economy wreaked havoc with the self-stabilizing came to negotiating. Steil writes that Keynes, “Had mechanisms that classical economists believed to be at an effortless facility with words that might have made constant work – in the design of a new global monetary architecture, built around a new international reserve him a master diplomat, had he actually been more currency. That would be a threat to the global supremacy of concerned with converting opponents than with the U.S. dollar and White was determined to keep it from seeing the light of day. cornering them logically and humiliating them.” His visionary monetary schemes notwithstanding, Harry Dexter White, a dogged American technocrat, Keynes had ultimately come to the United States with the mission of conserving what he could of bankrupt Britain’s ensured that the talks produced the result America wanted historic imperial prerogatives – what little room for maneuver it would be allowed in what seemed sure to be a dollar- dominated postwar world. His unlikely emergence as Britain’s last-ditch financial ambassador – its chief voice in the Bretton Woods, Lend-Lease, and British loan negotiations – was grounded in the repeated failure of his At the end of June 1944, while Allied troops were country’s politicians and mandarin class to make headway in advancing on all fronts in Europe, fevered preparations what amounted to increasingly desperate begging were being made back in the majestic White Mountains of operations in Washington. New Hampshire for the most important international White’s role as the chief architect of Bretton Woods, gathering since the Paris Peace Conference of 1919. where he outmaneuvered his far more brilliant but willfully The talks there, at Bretton Woods, would look beyond ingenuous British counterpart, marks him as an unrelenting the carnage of war to establish a new world order founded nationalist, seeking to extract every advantage out of the on commerce and cooperation. tectonic shift in American and British geopolitical circumstances put in motion by the Second World War. Before it began on July 1, U.S. Treasury Secretary, Henry While Keynes’s ideas have endured the test of time Morgenthau was elected president of the conference. Central better than the Bretton Woods monetary system, the to the Treasury’s blueprint for winning over the more pliable conduct and result of the talks illustrate that you can win the skeptics in Congress was cultivating the press with a degree argument but still lose out if the other side is holding most of of access and openness unprecedented for a major the cards, as the Americans were against a financially international political event; the administration was strapped Britain. The following excerpt from The Battle of determined not to repeat past mistakes with hostile Bretton Woods gives a flavor of those talks. media men. The perception in the American press was that the U.S. Harry Dexter White’s long-standing obsession was making delegation was intellectually outmatched by their British the dollar as good as gold. To the extent that could be done counterparts, led by the world-renowned revolutionary by decree at Bretton Woods, he intended to use a new economist John Maynard Keynes, a facund, servant-reared International Monetary Fund as his vehicle. John Maynard scion of Cambridge academics. Keynes at Bretton Woods Keynes, however, had fiercely resisted White’s earlier

was the first-ever international celebrity economist. attempts to give the dollar any form of special status. GettyPhotograph: Images

80 So it would have to be done out of his sight. White’s committee process was perfect for this. As with Operation Overlord in Normandy, White’s dollar strategy relied on deception and enemy errors. He accomplished the first critical maneuver on July 6, at a meeting of the Fund Commission’s Committee 2. The Joint Statement working document indicated that the par value of a member country’s currency, which would be agreed with the Fund when the country was admitted, would “be expressed in terms of gold.” The Americans submitted “Alternative A” text which said that the par value would instead “be expressed in terms of gold, as a common denominator, or in terms of a gold-convertible currency unit of the weight and fineness in effect on July 1, 1944.” The text had never, however, been approved by the British; Keynes had never even seen it. White deputy Eddie Bernstein explained that the suggested revision was “insignificant,” but “so worded to show no obligation to sell gold was implied.” It was obvious that “there will exist a gold-convertible currency by definition within the terms of the agreement,” he said. Keynes had prior to the conference repeatedly insisted that the term “gold-convertible currency” could have no fixed meaning, and was therefore unacceptable. Yet no one in the Committee meeting raised an issue with this, and the revised text successfully went up to the Fund Commission. “The Commission meeting this afternoon is extremely important,” White told his superior, Treasury Secretary Henry Morgenthau at a July 13 morning strategy session. “That is White must have had difficulty concealing his flush of where we either fish or cut bait on most of these things.” John Maynard Keynes excitement. With Keynes preoccupied managing the World What “things” he left unclear. White never raised the issue (left) and Harry Dexter Bank proceedings, Robertson had walked straight into White’s of the dollar’s role in any American delegation meeting, White in 1946 trap. He now made his second critical maneuver, peremptorily despite it being the most important one to him; he was ending the Commission’s discussion of the matter. “Unless determined to handle it below the radar, through his carefully there are any objections,” he said, “this question will be chosen operatives. referred to the Special Committee.” No objections being At the 2:30 PM Commission meeting the matter of the raised, he quickly passed on to another issue. inscrutable “gold-convertible currency” naturally came up. The next morning, 9:30 AM on July 14, Morgenthau The Indian delegate wanted to know what exactly it was: “I began a meeting of the full American team by reporting think it is high time,” he interjected during a lengthy technical cheerily that White had “worked up until three o’clock this discussion in which White had invoked the term, “that the morning with the Drafting Committee on the Fund and he USA delegation give us a definition of gold and gold feels [the text] is in excellent shape.” Morgenthau had no convertible exchange.” At that point, Dennis Robertson, the idea what exactly that meant, and likely no interest. But British delegate on the Committee, apparently imagining that among the achievements of the committee, comprised the issue was one of mere bookkeeping suggested that entirely of White’s technicians, was strategically replacing “payment of official gold subscription should be expressed “gold” with “gold and U.S. dollars” throughout the 96-page as official holdings of gold and United States dollars.” This Final Act. White never submitted the changes for change would, he remarked incautiously, require wording consideration in Commission One, yet they would become an changes elsewhere in the agreement. Bernstein concurred important part of the IMF Articles of Agreement. Keynes with Robertson that “gold convertible exchange” was hard to would only discover them after his departure from define, and that getting a definition “which would be Bretton Woods. satisfactory to everyone here ... would involve a long “Britain is ‘Broke’”, the New York Times blared on July 7. discussion.” But as a “practical” matter, he explained, since “It is no use to beat about the bush,” said Minister of Labour national monetary authorities could freely purchase gold for Ernest Bevin. “We have spent everything in this struggle and I am glad we have.” British bombers were that day dropping dollars in the United States, and international holdings of 2,500 bombs on Caen, in preparation for its recapture over currencies which might be used to purchase dollars were the next two days, while the Americans were liberating small, “it would be easier for this purpose to regard the Saipan Island in the Pacific, with nearly 4,300 Japanese United States dollar as what was intended when we speak of dying in a final “banzai” charge on U.S. troops.

Photograph: GettyPhotograph: Images gold convertible exchange.”

Brunswick Issue seven 81 Review Summer 2013 The Times article said that “pessimistic reports ... from pounds being worthless as long as Britain’s industrial Bretton Woods about the future of the Monetary Conference capacity was focused on war production rather than supplying were noted [in London] as discouraging auguries for ... the creditors with useful exports. Robbins called it “not difficult task” of boosting Britain’s export opportunities. particularly pleasant having to stand up before the assembled Keynes continued to attack the idea of Britain taking a nations and defend a position in which we are unable to pay private loan from American bankers as an alternative to our debts on terms acceptable to our creditors.” signing on to a deal at Bretton Woods. The Times quoted The United States had been blessed by a unique “the British financial expert and advocate of deficit financing confluence of events with a momentary window in which and cheap money” as saying that the program being it could, in return for its now-vital financing services, not only advocated by banking opponents of the conference, which put an end to competitive devaluation and trade protectionism would involve lending Britain $5 billion, was “too good to be – the scourge of the 1930s, from the Administration’s true.” White himself hit back at banker critics, telling the perspective – but permanently eliminate the old European press that the only losers from a Bretton Woods deal would powers as rivals and obstacles on the global stage. be the “buzzards” in the foreign exchange markets. Tensions within the British “family,” as the Times John Maynard Keynes died less than two years after the sarcastically referred to the Empire, were embarrassingly put conclusion of the Bretton Woods Conference. He suffered on display at the conference. Lionel Robbins [economist and a fatal heart attack on April 21, 1946, aged 62. British delegate] on July 2 recorded “a special confabulation Harry Dexter White died aged 55, two years after Keynes, between Keynes and the Indian representatives on the on August 16, 1948. He too suffered a heart attack. Three days sterling balance question which ... threaten[ed] to be a sore earlier he had testified before the House Un-American Activities point throughout the Conference.” India, the Times reported, Committee, where he denied being a communist. It later came later “created a ‘scene’” in front of the other delegations by to light that White had been passing sensitive information to demanding that the Fund provide some means of turning the Soviet Union during his time with the U.S. Treasury. Britain’s huge sterling debt to India into dollars. At nearly $12 billion, Britain’s Indian debt alone was 50% greater than Benn Steil is Senior Fellow and Director of International the entire proposed Fund capitalization. Egypt joined India in Economics at the Council on Foreign Relations, based in New insisting “on some international magic to give their pounds York. He is a columnist for the Financial News, and a regular the ability to purchase something that is wanted”; contributor to The Wall Street Journal and Financial Times.

These excerpts are taken from The Battle of Bretton Woods: benn steil on… John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, by Benn Steil. © 2013 by Princeton john maynard keynes harry dexter white University Press. Reprinted with permission Keynes’s writing sustained one supreme constant: biting White was on the tall side of short (five feet six), stocky, and disdain toward those who remained wedded to either moonfaced, with round rimless spectacles, blue eyes, and old heresies, as he saw them, or old orthodoxies. a trim, black mustache not infrequently likened to that of The General Theory of Employment, Interest and Money Germany’s dictator, Adolf Hitler. Though colleagues … (1936) is one of the most influential works of economic greatly respected his work ethic and command of detail, thought, and arguably the most intellectually audacious, “He could be disagreeable,” Treasury Secretary Henry ever published. As a critique of the classical nineteenth- Morgenthau reflected years later. He was “quick-tempered, century liberal belief in the social solidity of the free overly ambitious, and power went to his head.” He was also market, it was, given its vastly superior intellectual rigor, impatient, blunt, and sardonic. White’s principal assistant far more devastating than Marx’s Das Kapital. Yet its at Bretton Woods, Edward Bernstein, described him as message could not have been more different; whereas “temperamental” and “foul tempered.” Marx and Keynes both saw in capitalism the seeds of its The son of a peddler, he had an epiphany at age thirty, own demise, Keynes was convinced that it could – and in his second attempt at an undergraduate degree. Having indeed for the good of society must – be saved through failed entrance exams in civics and American history the judicious government intervention, particularly in the first time around, he was nonetheless incubating a growing form of timely large-scale public investment. passion for politics. Economics was a means to that end. It is difficult to overestimate the impact the General “[P]retty soon I realized that most governmental problems Theory had on the economics profession, particularly are economic,” he told a friend years later, “so I stayed with in the United States. economics.” Harry was onto something.

82 The first standards war of the modern era, between Thomas Edison and George Westinghouse, had some macabre consequences by robert moran, brunswick, washington, dc

This is the story of two proud entrepreneurs, both founders of iconic tech Edison power stations were also pushing DC power to Boston, Chicago, companies, fighting a winner-takes-all war over industry standards to ensure Philadelphia, New Orleans, and many other American cities. that their technology has the dominant share of a massive emerging Beyond his first-mover advantage and strong financial backing, Edison market. Patent fights, lobbying, public affairs campaigns and a healthy dose had the public’s adulation. With fame rivaling that of today’s tech billionaires, of showmanship result. And one standard emerges as the clear winner. Edison had a special gift for publicity. Reinforcing his image as an inventor, Gates vs. Jobs? Windows vs. Macintosh? Betamax vs. VHS? Good he eschewed the formal dress of his day and wore laboratory work clothes. guesses, but this was the first standards war of the modern era, played out He summoned reporters to his Menlo Park, New Jersey headquarters to in America’s “Gilded Age” at the end of the 19th century. It was a battle for wonder at his inventions. He charmed New York City’s political machine, the standards used in the hot new technology of the time: electricity. Think its aldermen and the Superintendent of Gas, the regulatory authority for alternating current vs. direct current (AC vs. DC). Edison vs. Westinghouse. gas lighting in the city. And he astutely ensured that The New York Times New Jersey vs. Pennsylvania. Two captains of industry fighting to ensure was powered by the Pearl Street Station plant on its first day of operation, that their mode of electricity delivery would become the standard for earning him glowing coverage in the country’s paper of record. businesses and homes. It was the first technical standards war, a high- Thus, Edison and direct current held the dominant position. But DC had stakes battle in the court of public opinion to determine which man would a serious flaw: local power plants could only push direct current within a become modernity’s “emperor of light.” one-mile radius, requiring the construction of numerous local power stations. Thomas Edison, the champion of direct current, began with a commanding Enter George Westinghouse, an inventor and progressive industrialist lead. His previous inventions, including the phonograph and the long-lasting from Pittsburgh, Pennsylvania with a fortune from railroad safety incandescent lightbulb, had made him famous and he had his sights set on a products, which he began inventing at the age of 22. Westinghouse began world electrified by a network of local Edison power plants. In 1882, the competing against Edison with Siemens dynamos pushing DC power Edison Electric Light Company – with backing from W.H. Vanderbilt, the heir to to neighborhoods, but Edison’s position in the market was virtually a railway fortune, banker J.P. Morgan, and Western Union – electrified lower unassailable. This drove Westinghouse to search for a technology that Manhattan with the Pearl Street Station. This was the first central power would disrupt direct current. He found his disruptive technology in 1885 while plant in the US, and it began disrupting the gas light market, an industry reading the English trade journal, Engineering, with its description Edison attacked as unsafe and derided as “the old time light.” By 1884 of the novel Gaulard-Gibbs system of generating alternating current.

Brunswick Issue seven 83 Review Summer 2013 Westinghouse, understanding immediately that alternating current could be generated and sent for miles before being “stepped down” to homes and LESSONS LEARNED businesses, put everything behind this novel method. And in a masterstroke, he brought in Nikola Tesla, a Serbian-born engineer, former Edison employee, Standards wars share a number of similarities; “the war and owner of a patent for a new AC motor. By 1886, the Westinghouse Electric of the currents” casts light on many of these. Company had quietly begun using alternating current to power retailers in the 1. First-mover advantage is no guarantee of success. It wasn’t small town of Great Barrington, Massachusetts, and in Buffalo, New York. In for direct current or Betamax. Still, if Edison had time contrast to Edison, however, the reserved Westinghouse avoided the press, to scale his system, he may have locked down key urban fearing the loss of his trade secrets. areas and crowded out AC. Edison reacted to Westinghouse’s moves with alarm. In his view, not 2. Old and new technologies can coexist for some time. Gas only was AC a threat to his DC business, it was a threat to public health. and kerosene were relatively cheap and electricity did not Having disrupted the gas light market with his incandescent bulb and the DC immediately replace them. In 1907, only 8 percent of US power business, Edison quickly realized that his favored DC power itself homes enjoyed electricity; by 1920 it was 35 percent. could be disrupted. Yet, like many engineers of his day, Edison was also genuinely concerned about the safety of high voltage AC systems strung 3. Standards wars are often about much more than technology. overhead. He did not believe that high voltage AC power could be stepped In the war of the currents, the merits of the competing down safely before entering homes and businesses. He truly believed that technologies were often lost in the drama surrounding the DC power was safer and, in order to maximize safety, had employed an army personas of Edison, Westinghouse, and Tesla. Corporate of Irish laborers to bury his power lines, at great expense, in lower Manhattan. and executive reputation matter. Edison’s initial reaction to Westinghouse’s technology was blunt: “Just as 4. Police your third-party advocates. Edison tried to keep certain as death, Westinghouse will kill a customer within six months.” his distance from Brown but was implicated when their In a clash reminiscent of his fight against gas lighting, “the war of the connection was exposed. currents” began, with Edison positioning DC as safer than AC. Edison 5. Play for the inflection points. Edison worked toward pamphlets described AC as “deadly” and claimed that the use of AC knockout blows on safety. Westinghouse bid for the “greatly enhanced risks to life and property.” The Edison campaign even Chicago World’s Fair project with almost zero profit in sparked popular concern over accidental electrocution, as the newspapers order to showcase his technology to a skeptical public. began to methodically tally instances of “electrocution by wire.” Had he not won the contract, the war of the currents Unfortunately, the public affairs campaign against AC veered into the may have raged for a generation. macabre. First, a self-proclaimed safety crusader named Harold Brown held well-attended public demonstrations in which animals, mostly stray dogs, 6. Like a political campaign, standards wars are often were electrocuted by AC power in order to prove its deadly nature. These decided by success in framing the issue. Edison tried shocking attacks on AC culminated in the bizarre electrocution of a rogue to make it about consumer safety, Westinghouse about Coney Island circus elephant named Topsy in 1903. The electrocution was power delivery over distance. 7. Language matters. Edison knew this best, positioning gas light as the “old time light” and unsuccessfully attempting to pin the term for electrocution on his rival.

Westinghouse won the contract to power and light the 1893 World’s Fair in Chicago and its brilliance captured the country’s imagination. Americans had seen the future. It was electric and it was Westinghouse’s AC

84 recorded by a new Edison invention, film, and exists to this day. In a warning flooded with dazzling light, earning the nickname “The White City.” Its to any company enlisting third parties in a public affairs war, Harold Brown brilliance captured the imagination of Americans – it even inspired was eventually exposed by the newspapers of the day for his hidden ties to Frank Baum’s Emerald City in The Wizard of Oz. Americans had seen the the Edison camp. In August 1889, The Sun, a New York newspaper, exposed future. It was electric and it was Westinghouse’s AC. Brown with the headline: “For Shame Brown! Paid By One Electric Company The second game-changer came in 1895, when Westinghouse was able to Injure Another.” to overcome significant skepticism from the International Niagara Commission The electrocution story took another, more hideous turn: the electric to construct an AC power system sending electricity from Niagara Falls to chair. Edison, initially an opponent of capital punishment, had written to central and western New York. The war of the currents was all but over. the New York State Commission in 1887 suggesting that the surest AC beat DC and won the war of the currents. General Electric quickly means of execution would come from his rival’s technology, alternating pivoted and competed successfully in the AC power market. In Promethean current. Three years later, convicted murderer William Kemmler was fashion, Westinghouse gave America alternating current but he lost his electrocuted in a purpose-built chair using AC. After Kemmler’s execution, manufacturing company in the financial panic of 1907 and his beloved Edison suggested a new name for this hi-tech capital punishment – electrical company in a proxy battle in 1911. Tesla, the eccentric genius, “Westinghoused.” The term did not catch on. The electric chair did. descended into increasingly bizarre behavior, claiming invention of a “death Ultimately, Westinghouse and AC won the war of the currents on technical ray.” Edison turned his genius to other inventions and searched for emerging merit and in the court of public opinion. It succeeded with two well-publicized industries in which his beloved DC power could thrive. A full century ahead achievements that captured the American public’s imagination. First, in what of his time, Edison focused his efforts on battery power and the battery- the press covered as a David and Goliath story, Westinghouse dramatically powered automobile and even created a functional one, too. underbid the newly-formed General Electric Company to win the contract to The first technology standards war is also the most instructive. First- power and light the 1893 World’s Fair in Chicago. The fight to power the mover advantage is no guarantee of success; in the media, the personalities World’s Fair was a turning point in his media relations strategy. The understated of the founders and inventors will be inseparable from the technology itself; Westinghouse shed his media-shy tendencies and instructed his public monitor your third-party advocates; and play for breakthrough inflection relations adviser, Ernest H. Heinrichs, to plead the company’s case with all points. Don’t be deceived, a standards war is as much a political campaign Chicago newspaper editors and capitalize on growing American uneasiness as a battle between technologies. with industrial concentration. The strategy worked. Westinghouse, with a Finally, language matters. Edison, the first American captain of sterling reputation as an industrialist who was determined to pay a living industry to master media relations, nearly succeeded in sidelining AC wage, connected with the zeitgeist and positioned himself as the underdog. with a rhetorical focus on consumer safety. Own the language and you This was smart politics, as the Sherman Antitrust Act had passed into law control the terms of the debate. only three years earlier, and a rapidly urbanizing and industrializing America struggled with the emergence of large, vertically integrated enterprises. Robert Moran is a Partner in Brunswick’s Washington, DC office and The Chicago Times roared, “Will Underbid the Trust: Mr Westinghouse leads Brunswick Insight in the Americas, part of the group’s global Promises to Make Electrical Fur Fly.” The PR offensive and the World’s Fair opinion research and market intelligence function. He specializes in coup were enormous successes for AC and Westinghouse. The fair was data-driven communications and public affairs strategy.

SHOCK TACTICS

Perhaps the most bizarre episode in “the war of the currents” was the electrocution of Topsy, a carnival elephant, in 1903. Direct current had already lost the war by then, but Thomas Edison saw one last chance to embarrass his rival George Westinghouse’s alternating current, and he took it. Brought to America in 1885, Topsy the elephant, crushed two trainers under her massive feet and killed a third in Brooklyn with her trunk. Coney Island officials prepared to hang the elephant and, improbably, began erecting a wooden scaffold. The Society for the Prevention of Cruelty to Animals intervened on humane grounds and Edison’s timely suggestion of electrocution by AC was accepted. It took 10 seconds to electrocute Topsy. The event is preserved in one of the first short films, made by Edison, Electrocuting an Elephant. Described the following day on the front page of The New York Times as “a rather inglorious affair,” it was a gruesome coda to the first modern standards war.

Brunswick Issue seven 85 Review Summer 2013 Photograph: @BarackObamaPhotograph: viaTwitter CRITICAL MOMENT snapshot of a communications turning point november 6 2012

It was just after 11pm on the East Coast Amid the countless words written about the when TV networks called victory for President election, this shot most eloquently captured Barack Obama in the crucial swing state the presidential message. of Ohio. Moments later, this picture of the Some said this was as contrived a piece of President tightly hugging his wife Michelle campaigning as anything that had come appeared on his Twitter account, accompanied before, but even critics of the President had by three simple words, “Four more years.” to admit that the tweet perfectly captured A striking image, a triumphant declaration, the moment. the Presidential hug was shared around the Bypassing the usual formality of election globe and rapidly broke records for the most announcements, this image’s apparent retweeted and “liked” photograph on Twitter humanity, authenticity and sincerity made and Facebook. the world want to share it. It also reminds us At a time when democracies are wrestling of a truism of communications: the medium with how to make the election process is the message, and the medium is personal. more engaging, this tweet targeted with laser The final piece of genius behind this moment precision the young and global audiences was that even though most of us probably who are Obama’s most fervent fans. The knew we were being played, it didn’t seem photograph, taken months before on the to matter. campaign trail in Chicago, was a refreshing departure from the traditional star-spangled ANDY RIVETT-CARNAC ­— banner waving. Partner, Brunswick, London

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SUMMER 2013

ISSUE SEVEN m ISSUE SEVEN

m s object lessons s object ’ – – s embrace ’ s social network ’ neil macgregor:

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INSIGHTS • INTERVIEWS • RESEARCH • DIFFERENT TAKE BRUNSWICK REVIEW ISSUE SIEVENSEVEN SUMMERSUMMER 2013 2013 0707 m mm om/review BRUNSWICK GROUP LLP GROUP BRUNSWICK www.brunswickgroup.c